In its fifth bi-monthly monetary policy announcement on Wednesday, the monetary policy committee (MPC), retained the real gross value added (GVA) growth for FY18 to 6.7 percent.
In its fifth bi-monthly monetary policy announcement Wednesday, the monetary policy committee (MPC), headed by RBI Governor Urjit Patel, retained the real gross value added (GVA) growth for FY18 at 6.7 percent on the back of several significant developments, that promise positive growth prospects.
The MPC listed three factors that could augur well for the growth prospects:
> The recent increase in the capital raised from the primary capital market as it will add to demand in the short run and boost the growth potential of the economy over the medium-term.
> India's improvement in the World Bank's Ease of Doing Business ranking which is expected to help sustain foreign direct investment in the economy.
> Measures taken by the government to reduce the burden on distressed borrowers through insolvency and bankruptcy code (IBC), and recapitalisation of public sector banks, which is likely to enhance allocative efficiency.
The MPC noted that the impact of these factors can be improved by reducing the cost of domestic borrowings through better transmission by banks of past monetary policy changes on outstanding loans.
The MPC also said the credit growth has picked up in the recent months, and is likely to improve further due to the recapitalisation.
On the domestic front, the growth of real gross value added (GVA) accelerated sequentially in Q2 of 2017-18, after five consecutive quarters of deceleration.
The MPC pointed out a sharp increase in industrial activity. The GVA growth in the manufacturing sector accelerated sharply on improved demand and re-stocking post goods and services tax (GST) implementation, said the RBI Bi-monthly Monetary Policy Statement.
The mining sector recovered in Q2 following higher demand. "The mining sector expanded in Q2 due to higher coal and natural gas production. GVA growth in the electricity, gas, water supply and other utility services sector also strengthened on higher demand," said the statement.
The MPC also noted other challenges in the growth outlook such as the lower than expected kharif production and rabi sowing in the agriculture sector and the recent rise in oil prices, which may have a negative impact on margins of firms and GVA growth.
In the services and infrastructure sectors, where the activities decelerated in last quarter, the central bank expected improvement in demand, financial conditions, and the overall business situation in Q4.
The reduced activity was mainly on account of slowdown in financial, insurance, real estate and professional services as well as public administration, defence and other services (PADO) that recorded a slowdown due to the large front-loading of government expenditure in Q1.
The growth in the real estate sector remained tepid due to transitory effects of the RERA and GST implementation.
"Growth in the trade, hotels, transport and communication sub-group remained resilient, in spite of some slowdown in growth in Q2 as compared with the previous quarter," said the statement.Here are the 10 key takeaways of the RBI Monetary Policy