Economy nearing sustained 8% growth trajectory: RBI Governor Shaktikanta Das

MUMBAI: Reserve Bank Governor Shaktikanta Das has asserted that the prevailing high interest rate is not impeding growth, making it clear that the monetary policy will continue to “unambiguously” focus on getting inflation down and it be a target going forward.

The country is at the threshold of a “major structural shift” in its growth trajectory and is moving towards a path where 8 percent GDP growth can be sustained on a yearly basis for a longer term, Das said addressing an event by the Bombay Chamber of Commerce and Industry here on Tuesday.

“Normally if growth is well sustained, if you’ve good growth, then it is a clear sign that the monetary policy and your interest rates are not acting as an impediment to growth,” Das said.

Addressing the debate on the sacrifices to growth because of the elevated interest rates, Das said all such concerns are misplaced and the growth momentum is continuing month on month.

He said RBI’s nowcasting team is projecting a GDP growth number at 7.4 percent for the June quarter, which is higher than the central bank’s own estimate of 7.3 percent, and added that he is confident of the economy growing at the RBI estimated 7.2 percent in FY25.

“A good growth outlook gives us the necessary space to unambiguously focus on inflation,” the governor added.

Using the analogy of chess to underline the focus on the inflation moderation going ahead, Das made it clear that one wrong move can distract and get us off-track now.

“A single adverse weather event can take inflation back to over 5 percent,”he said, stressing on the focus that is required.He said the inflation has come down by 3.10 percentage points to 4.7 percent currently from a high of 7.8 percent in 2022 “primarily” due to the monetary policy actions.

Connecting lower inflation with growth aspirations, he said a lower level of price rise can ensure sustainable growth.

“High inflation makes the economy uncompetitive, makes the economy an unfavourable destination for both domestic as well as foreign investments… above all, a high inflation would mean lowering the purchasing power of the people especially the poor people,” he said.

Das said after three years of growth getting a push from the government expenditure, there is “clear evidence” of private capex, which has been missing for almost 12 years now, picking up and pointed to sectors associated with infrastructure like cement and steel witnessing the highest interest.

Contrary to some calls, including by Raghuram Rajan— his predecessor at the mint road earlier who asked India to focus on services sector for growth, Das said the economy will grow only when multiple sectors fire up and pitched for a “multi-sectoral” approach to keep pushing growth.

He said a large economy like our cannot exclusively rely on either manufacturing or services for achieving its growth ambitions.

A day after the RBI placed an additional director on the board of Bandhan Bank which is undergoing leadership transition, Das said the banking and non-bank sectors are healthy. The financial stability metrics of the country are better than earlier, he said.

Das said GST, bankruptcy code and also the flexible inflation targeting have been some of the best structural reforms in the recent past which have helped the country clock over 8 percent growth in the past three fiscals and is likely to do an encore in the coming years as well.