Optimism Prevails: RBI Governor Shaktikanta Das on India's economic outlook

Reserve Bank of India (RBI) Governor Shaktikanta Das offered a cautiously optimistic view of the Indian economy amidst mixed signals surrounding festival season demand. He emphasised that the positives currently outweigh the negatives, highlighting that the economy is on a stable growth path as detailed in a report by CNBC TV18.

In a recent interview with CNBC TV18 in Washington DC, Das acknowledged some slowdown in specific sectors but asserted that the agricultural sector is thriving this year, largely due to favorable monsoon conditions. He expressed confidence in the upcoming rabi crop and noted a revival in rural demand, signalling a positive shift for the economy.

Das pointed out that several key economic indicators are showing strong growth, further supporting the notion that the economy is performing well. However, he also stressed the importance of being aware of external risks, including geopolitical tensions, geo-economic fragmentation, and severe weather events that could affect external demand. He stated, “By and large, India’s economic growth has always been sustained by domestic demand and investment, both of which remain robust.”

Growth projections of RBI

Looking ahead, the RBI projects India’s economy to grow by 7.2 per cent in FY25, with quarterly growth rates anticipated at 7 per cent for Q2, 7.4 per cent for Q3, and 7.4 per cent for Q4. Das noted a favourable balance between growth and inflation, which allowed the RBI to adopt a neutral policy stance in its recent monetary meeting. This flexibility will enable the RBI to closely monitor incoming data and adjust its policies as needed.

Das highlighted that inflation appears to be moderating, with further reductions expected as the year progresses. However, he cautioned that risks to the inflation outlook remain, stressing the need for careful consideration before making any premature policy changes.

Regarding interest rates, Das indicated that any potential cuts would hinge on forthcoming data and inflation trends. He mentioned that household inflation expectations have been gradually decreasing over the past two years, indicating a shift in sentiment.

Views on the Banking sector

On banking sector stability, Das dismissed concerns of systemic risks, noting that both the banking and non-banking finance sectors remain robust. However, he acknowledged issues in the microfinance sector, where the RBI has found that some non-banking financial companies (NBFCs) were charging excessively high interest rates, prompting regulatory action.

The RBI has recently barred four NBFCs from issuing loans due to exorbitant practices, underlining its commitment to consumer protection.

Finally, Das mentioned ongoing discussions about the liquidity coverage ratio (LCR) guidelines in light of the growing prevalence of digital banking. He indicated that the RBI is considering tightening LCR norms to mitigate risks associated with rapid withdrawals, reflecting the evolving landscape of banking in the digital age. Feedback from the banking sector will be taken into account as these measures are developed.