Reserve Bank of India Governor Raghuram Rajan said on Friday that a drop in public and private investments were the main concerns he had about the country’s economic growth.
Weak capital investment has been a key factor behind India’s struggle to realise its growth potential and with factories running 30 percent below capacity, private companies are in little rush to make fresh investments.
“On the growth front, the central concern is with investments,” said Rajan, who was speaking at a business event in Hong Kong. “Private investment has fallen back a bit and so has public investment.”
The RBI has cut its growth forecast for the current fiscal year to 7.4 percent from 7.6 percent previously, well below the government’s target of 8 to 8.5 percent, but still faster than China.
Despite the slowdown in growth and investments, Rajan said strong foreign direct investment and some traction in infrastructure development may encourage private investments.
Rajan, who was speaking at a business event in Hong Kong, has said the central bank expects to meet its 6 percent target for retail inflation – which the RBI tracks to set interest rates – for January and will focus on its 5 percent target for March 2017.
The central bank cut the benchmark policy rate by a half percentage point to 6.75 percent in September, after months of pleading by government leaders and industrial groups for more stimulus to stoke growth.