Despite fall, GDP will bounce back sharply: RBI Governor

After so many flip-flops, finally Reserve Bank Governor Urjit Patel said India’s economic growth will make a “sharp V” recovery following the recall of old 500 and 1,000 rupee notes.

The statement from RBI chief is late as well as misleading. RBI last week lowered economic growth for the current fiscal to 6.9 per cent from the previously projected 7.1 per cent, but now predicting that it will bounce back in a big way to 7.4 per cent in 2017-18.

Most of the economists and financial institutions have predicted a sharp fall in growth rate but, RBI chief says that higher growth rate is possible if very fundamental reforms, especially in factors of production like land and labour, are undertaken.

“Now how much higher than 7.5 that we are achieving so far is difficult to say. But the fact is we need to grow at some point faster than we are now,” he said. “I think 7.5 per cent growth rate is not something to be disappointed about.”

The six-member monetary policy committee (MPC) headed by Patel had last week kept interest rates unchanged at 6.25 per cent for the second straight meeting and changed policy stance to ‘neutral’ from ‘accommodative’.

The change in stance, he said, gives more flexibility to cut, raise or hold rates as compared with an accommodative one on inflation outlook.

The RBI Governor expressed concern over the US moving towards protectionism under Trump. “I think it is a cause of concern for the world, I think it is a cause of concern for the emerging markets in terms of creating financial volatility. I don’t think anyone will be safeguarded from it. We have to manage this as it plays out,” he said.