During FY19, the balance sheet size of the RBI increased by 13.42% to Rs 41.03 lakh crore.
Subdued global demand and some slack in government consumption expenditure led to a moderation in economic activity during 2018-19, the Reserve Bank of India (RBI) said on Thursday in its annual report for the year. Even as accommodative monetary policies around the world led to an improvement, global growth ebbed in early 2019 and near-term risks to growth remain tilted to the downside. The outlook for the Indian economy remains clouded, too, the central bank has observed.
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During FY19, the balance sheet size of the RBI increased by 13.42% to Rs 41.03 lakh crore. The year ended with an overall surplus of Rs 1.76 lakh crore, up 252% from Rs 50,000 crore in the previous year. Real gross domestic product (GDP) growth slid to a five-year low of 6.8% in FY19, down from 7.2% in the previous financial year. The report said the loss of speed became evident from Q2 as some drivers of growth — notably investment — began to fade, albeit cushioned by still resilient consumption spending, both private and government. Through the second half of the year, high frequency indicators flashed slowing sales growth among manufacturing and non-IT services sector corporations, with evidence of private consumption losing pace, especially in the fast-moving consumer goods (FMCG) segment.
In the second half of the year, private consumption, the mainstay of aggregate demand in India, weakened more than initially anticipated, the RBI said. Even as consumption expenditure moderated during 2018-19, its contribution to GDP increased for the second successive year. Private final consumption expenditure, the major component of aggregate demand, accelerated in the first half of the year, supported by higher disposable income on account of lower food expenses. In contrast, rural demand was affected by moderation in agricultural growth as reflected in tractors and two-wheeler sales. Indicators of urban demand — air passenger traffic, passenger vehicle sales and production of consumer durables among them — hit multi-year lows as well.
Going ahead, growth in rural demand would hold up because of public expenditure directed to rural areas through the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) and farm loan waivers by some states. The ongoing repair of banks’ balance sheets and rebuilding of capital buffers brought about a plateauing of stressed assets and a rekindling of credit flows, the central bank said, while highlighting the risks building up in the non-banking space. “With aggregate demand slowing in a broad-based manner, the gains in restoring financial stability may be at risk, exacerbated by credit and liquidity stress in the non-banking space,” the report observed.
While growth in exports was hit by global developments such as US sanctions against Iran, the revelations of fraud in some domestic banks and the subsequent ban on letter of undertakings (LoUs) also had a transient impact, the RBI said. The central bank pleaded for an “opportunistic export strategy” amid growing incidences of unilateral trade actions.
The report flagged off slower industrial production and a reluctance to invest, explaining that the deceleration in industrial output and its main component – manufacturing – to below 4% during 2012-19 has larger consequences in terms of employment and income generation in both rural and urban areas. The subdued performance of consumer non-durables is a source of worry as well, the central bank held.