RBI lowers GDP growth rate estimate for fiscal to 7.4 percent

Mumbai, Sep 29 (IANS) The Reserve Bank of India on Tuesday scaled down its earlier estimate of the country’s GDP growth for the current fiscal to 7.4 percent citing lack of new private investment, banks’ stressed assets and waning business confidence in context of slow global growth.

“With global growth and trade slower than initial expectations, a continuing lack of appetite for new investment in the private sector, the constraint imposed by stressed assets on bank lending and waning business confidence, output growth projected for 2015-16 is marked down slightly to 7.4 percent from 7.6 percent earlier,” the RBI said in its bi-monthly monetary policy statement.

“Underlying economic activity, however, remains weak on account of the sustained decline in exports, rainfall deficiency and weaker than expected momentum in industrial production and investment activity,” said the central bank.

The RBI on Tuesday cut its repo rate, at which it lends to commercial banks, by 50 basis points to 6.75 percent.

Fears over deficient rains in the current monsoon season and gradual progress of reforms had prompted international credit ratings agency Moody’s last month to lower India’s growth forecast for this year by 50 basis points to 7 percent.

The RBI also referred to the GDP calculated under a new series unveiled earlier this year, whereby advance estimates for 2014-15 projected India’s GDP to grow 7.4 percent.

Based on the new series, the Indian economy is officially estimated to have grown by seven percent in the first quarter of this fiscal, slower than the 7.5 percent expansion in the quarter before — but much higher than 6.7 percent registered in the first quarter of the last fiscal.

“Concurrent indicators also suggest that the new GDP series shows higher growth than would the old series, which necessitates recalibrating old measures of potential output and the output gap to the new series,” the policy statement said.

Changing the base year to 2011-12 from 2004-05 in January, the Central Statistics Office (CSO) said that India’s real GDP, that is adjusted for inflation, grew 6.9 percent in 2013-14 instead of the earlier projected 4.7 percent, and by 5.1 percent in the year before compared to 4.5 percent under the previous system.

The new numbers seemed contradictory when compared with other economic indicators such as revenue growth of listed firms, expansion of bank credit, the index of industrial production numbers as well as real challenges confronting India Inc. such as weak demand, high debt and low earnings.

“We do need to spend more time to understanding the GDP numbers,” RBI Governor Raghuram Rajan had remarked in February, while unveiling the bi-monthly monetary policy that had, in fact, retained the 2014-15 growth forecast of 5.5 percent based on the old method.

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