The Reserve Bank on Wednesday retained the GDP growth forecast at 9.5% for the current fiscal but cautioned that the economic recovery is not yet strong enough to be self-sustaining and durable. In an address after the three-day meeting of the Monetary Policy Committee (MPC), RBI Governor Shaktikanta Das said managing a durable, strong and inclusive recovery is the central bank's mission.
"We need to be persevering, patient and persistent in our efforts. We also need to be aware, alert and agile to the new realities confronting us. Our efforts over the past one year and nine months have given us the confidence and a head start to face the challenges that lie ahead," he said. He added the Indian economy is relatively well-positioned on the path of recovery but it cannot be immune to global spillovers or to possible surges of infections from new mutations, including the Omicron variant.
According to him, incoming information indicates that consumption demand has been improving, with pent-up demand getting reinforced by the festive season. Rural demand is exhibiting resilience and farm employment is picking up with the robust performance of agriculture and allied activities. The recent reductions in excise duty and state VAT on petrol and diesel should support consumption demand by increasing purchasing power, Das said.
"... the projection for real GDP growth is retained at 9.5% in 2021-22 consisting of 6.6% in Q3 and 6.0% in Q4 of 2021-22," he said.
Projecting the inflation trajectory in line with its earlier estimate, the RBI also said the retail inflation is expected to be around 5.3% during the current fiscal year. It is expected to ease further to 5% by the first quarter of the next fiscal year, RBI Governor Shaktikanta Das said while announcing the monetary policy for the last time of this fiscal.
The inflation trajectory is likely to be in line with our earlier projections, and price pressures may persist in the immediate term, Das said.
"CPI (consumer price index) inflation is projected at 5.3% for 2021-22: 5.1% in Q3; 5.7% in Q4 of 2021-22, with risks broadly balanced. CPI inflation is then expected to ease to 5% in Q1:2022-23 and stay at 5% in Q2:2022-23," he said.
Das said RBI's monetary policy stance is primarily attuned to the evolving domestic inflation and growth dynamics.
The reduction of excise duty and value added tax (VAT) on petrol and diesel will bring about a durable reduction in inflation by way of direct effects as well as indirect effects operating through fuel and transportation costs, the governor said.
The RBI has kept its key repo rate (at which it lends money to banks) unchanged at 4%, with the stance remaining "accommodative" as long as necessary to revive and sustain growth on a durable basis.
This is the ninth time in a row that the MPC headed by RBI Governor Shaktikanta Das has maintained the status quo. RBI had last revised its policy repo rate or the short-term lending rate on May 22, 2020 in an off-policy cycle to perk up demand by cutting the interest rate to a historic low.
Last month, National Statistical Office (NSO) estimated the Gross Domestic Product (GDP) growth at 8.4%, year-on-year (y-o-y), for the second quarter of the current fiscal.
Meanwhile, Fitch Ratings, on Wednesday, cut India's economic growth forecast to 8.4% for the current fiscal but raised the projection for the next financial year to 10.3%.