Workers work at a coastal road construction site in Mumbai on January 12, 2022.
Punit Paranjpe | Afp | Getty Images
India can achieve sustainable economic growth of up to 8% in the medium term, according to the country’s central bank governor.
His comments come shortly after data showed India’s gross domestic product slowed to 6.7 percent in the second quarter, from 8.2 percent in the same period last year. The data increased pressure on the central bank to start its own rate-cutting cycle sooner rather than later.
Speaking to CNBC’s Tanvir Gill on Friday in an exclusive interview, Reserve Bank of India (RBI) Governor Shaktikanta Das said he expects a growth rate of 7.5% in the coming years for India, “with upside potential.”
Das said it was hard to say what healthy growth looked like for the world’s most populous country, but growth of 7.5 percent to 8 percent “may be sustainable” in the medium term.
In one August bulletin from RBIthe governor highlighted an expected real GDP rate of 7.2% (adjusted for inflation) for 2024 to 2025, with the same rate for the first quarter of the 2025-26 fiscal year, with risks being “evenly balanced” and from both sides.
India was previously described by the International Monetary Fund as “the world’s fastest growing large economy”, while Goldman Sachs says India is poised to become the world’s second largest economy by 2075 — overtaking Japan, Germany and the USA to become second only to China.
However, India’s growth rate has moderated in recent quarters and the IMF warned in July that economic expansion is likely to slow to 6.5% in 2025.
It comes as major central banks have begun to ease monetary policy in recent months, including the European Central Bank, the Bank of England and the Swiss National Bank.
The US Federal Reserve is widely expected to join the rate-cutting club later this week, putting further pressure on India to start easing policy.
“This seems to be rate cut season,” Das said. “But on a serious note, you see our monetary policy will be governed primarily, I would like to emphasize primarily, by our domestic macroeconomic conditions, by our domestic inflation. [and] growth dynamics and prospects,” he added.
“Well, we’re governed by that. Yes, of course, what’s going on around us, what the Fed is doing or what the ECB is doing or what some of the other central banks are doing …, they affect us, and we look at that,” he said Dash.
“But ultimately, at the end of the day, our decision is driven by domestic factors.”
Reacting to the governor’s forecast of 8% growth, Eswar Prasad, a professor of international trade and economics at Cornell University, told Street Signs Asia on Monday that the number looked more like an “aspiration” than a “realistic” target for it. the stage. .
“But certainly India is well positioned to benefit from changes in geopolitical patterns affecting trade and financial flows around the world,” he said, warning that economic and labor reforms are needed to attract more foreign capital.
RBI chief says Fed rate cut won’t affect India
Fed policymakers laid the groundwork for a rate cut ahead of their two-day meeting, which begins on Tuesday. The only remaining question seems to be whether the Fed will cut interest rates.
Some economists argued that the Fed should achieve a cut of 50 basis points, accusing the central bank of previously withdrawing “too far, too fast’ by tightening monetary policy.
Others have described such a move as “too risky” for markets, pushing instead for the central bank to achieve a 25 basis point rate cut.
“We’re not going to be affected by how big of a rate cut they do, whether it’s 25 or 50 or how often and what the frequency of their rate cuts is,” Das said, referring to the Fed’s rate cut outlook.
Asked whether the RBI’s Monetary Policy Committee (MPC) would actively consider a rate cut in early October, Das replied: “No, I can’t say that.”
“We will discuss and decide in the MPC, but in terms of the dynamics of growth and inflation, there are two things I would like to say. One, growth momentum continues to be good, India’s growth story is intact and, so far, as inflation The outlook is worrisome, we have to look at month-to-month momentum,” he continued. “Based on that, we will make a decision.”
