Growth here to stay as rural economy revives, but risks to inflation remain, says RBI Governor Shaktikanta Das

"Even now, many high frequency indicators such as domestic air passenger traffic or two-wheeler sales are exhibiting a robust growth," said the Governor.

RBI Governor Shaktikanta Das has said that any concern regarding a 'slowdown' in festive demand this season is outweighed by positive cues from the economy, and the macroeconomic indicators may be giving 'mixed signals'.

Speaking to CNBC-TV18 in Washington DC, Das said on October 26 that there is 'some narrative' that the festive season sales this year may have slowed down or that there was some unseasonal rain, however, these negatives are outweighed by positives.

"There are mixed signals, there are positives and negatives. The positive significantly outweigh the negatives," Das said.

Even though the Q1FY25 growth rate was lower than RBI's projection, Governor sounded confident of a rural demand revival this year on the back of the expectations of a good Rabi crop as the monsoon has been good. "Agriculture is doing exceedingly well due to a strong monsoon and expectations from the Rabi crops are high," he said. Despite the first quarter GDP coming in lower than RBI's estimate, the consumption demand came in higher, showing 'significant revival'.

"Even now, many high frequency indicators such as domestic air passenger traffic or two-wheeler sales are exhibiting a robust growth," Das said.

Das also recalled that last year, when RBI had projected a forecast of higher economic growth, the central bank was labelled as being too optimistic, but the GDP fine print turned out to be even better than RBI's projection.

The International Monetary Fund (IMF) has also kept India’s GDP growth forecast for FY25 unchanged at 7 percent, its new World Economic Outlook released on October 22.

The Inflation-Growth Balance

Das said the RBI now has the flexibility to watch the data and decide on interest rates, as the growth-inflation component now seems to be "well-balanced", which had led the central bank to change its stance to 'Neutral' during the MPC meet in October. The Governor added that growth seems to be doing well, and we can expect inflation to moderate as we go into November-December.

However, he highlighted 'significant risks' to the inflation outlook, hence the central bank is approaching carefully. "We are at such a place that growth and inflation as so well-balanced, that any premature move can upset that balance, and affect our objective of close to 4% inflation target," Das said, adding that "we should not do anything in haste."

The RBI Governor added that he would wait to have greater confidence of inflation aligning with the stated target.

He recalled that the central bank has navigated through a pandemic and a war in Ukraine along with geopolitical tensions to ensure India's macroeconomic stability in such times, which was a major achievement.

Role as a Central Banker

The RBI Governor said that having had a long stint at the Finance Ministry meant he had the understanding of requirement of both the sides, which were not necessarily 'conflicting.'

"In navigating a period of crisis, one knows how to balance the objective of growth, which is that of the government, and the objective of price stability, which is mandated responsibility of RBI," the Governor said, adding that both agencies 'need each other' for the success of the economy.

Das said he had a few weeks to go as the central bank governor, and he is focused only on his work. "Beyond that, I don't think, or it is not something that distracts me."

Action on NBFCs

Governor again reassured that there was "no systemic risk" in the NBFC or the banking space, which remain robust and in line with all regulatory parameters. However, the micro finance lending space where the central bank saw a problem. Earlier in October, the RBI had taken action against some NBFCs and NBFC-MFI citing material supervisory concerns, asking these entities to cease and desist sanction and disbursal of loans.

"When we see that appropriate corrective action is not being taken to our satisfaction, then we have to act and protect the interest of the customers," Das said. RBI has been cautioning microfinance lenders over the higher pricing charged on loans.