Mumbai:
In a bold statement, Reserve Bank of India (RBI) Governor Sanjay Malhotra expressed his confidence that India can achieve a growth rate of 7% or higher in the upcoming fiscal year. This aspiration comes on the heels of the RBI’s decision to reduce the policy rate by 25 basis points to 6.25% in its latest Monetary Policy Committee meeting. The rate cut, the first in about five years, is aimed at supporting economic growth as inflation continues to moderate.
Governor Malhotra’s optimism is underpinned by the RBI’s projection of a 6.7% GDP growth rate for the fiscal year 2025-26, slightly above the government’s Economic Survey estimate of 6.3-6.8% for the same period. This growth is expected to be driven by strong domestic demand, particularly in the second half of the fiscal year. The services sector and manufacturing exports, especially in high-value-added components like electronics and pharmaceuticals, are anticipated to be key drivers of this growth.
The RBI’s decision to cut the policy rate is a significant move, marking the first rate change in two years and the first reduction in five years. This move is intended to provide relief to borrowers by potentially lowering EMIs on loans and to support economic growth as inflation eases. The current inflation rate, at 5.2% for CPI and lower for WPI, is expected to further moderate, with projections indicating it will align closer to the RBI’s target of 4% in the coming fiscal year.
Managing inflation remains a primary objective for the RBI, but with inflation on the decline, the central bank is shifting its focus towards supporting growth. The RBI expects CPI inflation to ease to 4.8% in 2024-25 and further to 4.2% in 2025-26, with quarterly estimates suggesting a gradual alignment with the target. Food inflation pressures are expected to soften significantly due to favorable rabi crop prospects and strong kharif production, contributing to a stable inflation outlook.
The RBI will maintain a neutral stance to proactively respond to evolving macroeconomic conditions. This approach allows the central bank to be vigilant and nimble in managing liquidity and responding to any shifts in the economic landscape. With real interest rates currently at approximately 1.5%, the RBI is well-positioned to balance growth and inflation objectives.
Despite global economic uncertainties and potential disruptions to trade and supply chains, India’s economic resilience is evident. Strong investment growth, robust rural consumption supported by agricultural performance, and the services sector’s continued growth are all indicators of the country’s ability to adapt and thrive. As Governor Malhotra emphasized, aspiring for a 7% or higher growth rate is not just ambitious but also achievable, reflecting the nation’s economic potential and resilience.
