RBI sees economy growing at 7.4% in FY16; above WB projection

Reserve Bank today kept its growth projections for Indian economy unchanged at 7.4 percent for the current fiscal, a tad higher than 7.3 percent forecast by the World Bank. The 6th Bimonthly Monetary Policy Statement, 2015-16, announced by RBI Governor Raghuram Rajan has pegged the growth to quicken to 7.6 percent in the next fiscal. "The Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude.

"For 2016-17, growth is expected to strengthen gradually, notwithstanding significant headwinds. Based on an assessment of the balance of risks, GVA (Gross Value Added) growth for 2016-17 is projected at 7.6 percent", Rajan said while announcing the policy. He said the current momentum of growth is reasonable, though below what should be expected over the medium-term.

RBI stressed that the underlying growth drivers need to be rekindled to place the economy durably on a higher growth trajectory. The apex bank kept the key repo rate, at which it lends to commercial banks, unchanged at 6.75 percent, largely in line with market expectations. "The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation," Rajan said.

He added that structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth, given the condition retail inflation remains at RBI's target of 5 percent by end of 2016-17. RBI expects the growth in the next fiscal to strengthen gradually, notwithstanding the significant headwinds. Weak domestic private investment, concerns on stalled projects, excess capacity and sluggish external demand dampening export to act as headwinds, it said.