RBI raises 2020-21 GDP growth projection to 6 pc

Announcing its last bi-monthly policy review of the current fiscal, the RBI's Monetary Policy Committee (MPC) on Thursday maintained status quo on the repo rate and continued with its accommodative stance, while raising growth the forecast for 2020-21 to 6 per cent.

The central bank pegged  the April-September 2020 GDP growth in the range of 5.5-6 per cent, and the October-December (Q3) 2020 GDP growth at 6.2 per cent. The RBI had in December projected GDP growth for the second half of the current fiscal at 4.9-5.5 per cent, and the for first half of fiscal 2021 at 5.9-6.3 per cent.

This was in line with the Central Statistics Office's (CSO) advance estimates which pegged the current year's GDP growth rate at 5 per cent.

The government's Economic Survey has projected the 2020-21 economic growth at 6-6.5 per cent.

The RBI Governor also listed several positives in the scenario, including improvement in industrial activity, better core industry performance and higher rabi sowing.

Weak demand, however, continued to affect key sectors like manufacturing in the third quarter of 2019-20 though sentiment has improved, according to the RBI's monetary policy statement.

India's GDP growth has been on a downward slide for the last six quarters. In the September quarter of this fiscal, it slipped further to hit a six-year low of 4.5 per cent, resulting from the slump in manufacturing output, which contracted by 1 per cent.

Economic growth rate moderated from 5 per cent in the April-June quarter of this fiscal and 7 per cent in the July-September quarter of 2018.

In December, the RBI had revised its GDP growth projection for fiscal 2020 to 5 per cent, from its earlier 6.1 per cent. The MPC, which kept the policy rates unchanged at 5.15 per cent, had also accepted that economic growth had weakened further with the output gap remaining "negative".

The MPC said that its growth outlook would be influenced by several factors. It expects private consumption, particularly in rural areas, to recover on the back of improved rabi prospects.

"The recent rise in food prices has shifted the terms of trade in favour of agriculture, which will support rural incomes," the policy statement said.

It also expects the easing of global trade uncertainties to encourage exports and spur investment activity, but conceded that the breakout of the coronavirus may, however, impact tourist arrivals and global trade.

"Monetary transmission in terms of a reduction in lending rates and financial flows to the commercial sector has progressed vis-a-vis the last policy, and this could spur both consumption and investment demand," it said.

The MPC also noted that rationalisation of personal income tax rates in the Union Budget 2020-21 should support domestic demand along with measures to boost rural and infrastructure spending.