The Monetary Policy Committee (MPC) reduced the outlook for the GVA growth to 6.7 percent for this fiscal year from the August projection of 7.3 percent, citing uncertainty around the implementation of Goods and Services Tax.
GVA is gross value added.
However, it added that the strain in manufacturing arising from the rollout of indirect tax regime will be felt only in the short-term. It expects business sentiment to improve in the third quarter.
It also pointed to advance estimates of kharif or summer crop production as suggesting a setback to the economy. Stressed balance sheets of banks, which have been under pressure from its pile of bad loans, will likely hamper investments, the RBI note said.
The third quarter will markedly different from the preceding quarter which saw a dip in the consumer confidence, said the RBI.
The RBI has flagged rising input costs and lack of pricing power as putting pressure on the ability of corporates to increase their profit margins.
A RBI survey finds that consumer confidence is at a low ebb regarding jobs, salary and prices.
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