RBI says India’s GDP to grow at 7.4% in FY19; revises inflation projections

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Published: June 6, 2018 3:25:35 PM

The Reserve Bank of India (RBI) on Wednesday said that India's GDP growth is projected at 7.4% in the financial year 2018-19, reiterating its April forecast, while revising the projected CPI inflation to 4.8-4.9% in H1 and 4.7% in H2.

RBI says India's GDP to grow at 7.4% in FY19; revises inflation projectionsThe RBI on Wednesday said that India’s GDP growth is projected at 7.4% in FY19 (Image: Reuters)

The Reserve Bank of India (RBI) on Wednesday said that India’s GDP growth is projected at 7.4% in the financial year 2018-19, reiterating its April forecast, while revising the projected CPI inflation to 4.8-4.9% in H1 and 4.7% in H2. As India showcased a robust growth of 7.7% in the fourth quarter of the financial year 2017-18, the RBI said, that the investment activity is expected to remain robust even as there has been some tightening of financing conditions in recent months.

However, the central bank said that the manufacturing activity may moderate marginally in the second half of the financial year “on account of deterioration in the overall business situation and order book”. The RBI said that consumption, both rural and urban, remains healthy and is expected to strengthen further.

The RBI voted unanimously to hike repo rate by 25 basis points, in a first interest rate hike in four-and-a-half years, citing a major upside risk to the baseline inflation on the back of high crude oil price. On inflation, the central bank said that the crude oil prices are posing “considerable uncertainty” to the inflation outlook. However, there are several other risks as well, the RBI said.

“The headline inflation outlook is driven primarily by two countervailing effects. On the one hand, CPI inflation excluding food and fuel rose sharply in April over March by 80 basis points to reach an ex-HRA level of 5.3 per cent, suggesting a hardening of underlying inflationary pressures… On the other hand, food inflation has remained muted over the past few months and the usual seasonal pickup delayed, softening the projections in the short run,” the RBI said in its June MPC statement.

The global financial market developments, a significant rise in households’ inflation expectations and staggered impact of HRA revisions are other factors that may push headline inflation up, the RBI said. A normal monsoon, as predicted by the IMD, may help keep food inflation benign. The RBI said that assess the impact of revised Minimum Support Price (MSP) was not possible at this stage.

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