Growth being driven by investments, consumption demand weak: MPC’s Shashanka Bhide
While India’s GDP growth has been stronger-than-expected , it is largely being driven by investments even as consumption demand remains weak and the global economy is seeing a slowdown, said Shashanka Bhide, one of the six members of RBI’s Monetary Policy Committee (MPC).
“Q2 growth was significantly more than what we were expecting. These changes (from growth expectations), even when they are more positive or favourable, require far more concern. I believe there are vulnerabilities to this growth assessment,” Bhide said at SBI’s Banking and Economic Conclave.
On the demand side, investments are driving growth but there is weaker growth in consumption demand. Further, external demand is not expected to be the major driver of the economy, given the global slowdown. On the supply side, a weak monsoon could have certain implications to agricultural growth and rural demand. Elevated domestic food inflation and uncertainty due to geo-political conflicts which have the potential to affect global supply chains, also pose a concern.
Bhide’s comments come at a time when several economists and analysts have been vocal about India’s ‘consumption story’ and its growth potential to drive accelerated GDP growth. In its December monetary policy, RBI raised its GDP growth forecast for FY24 by 50 bps to 7 per cent following the better-than-expected data for July-September. RBI Governor Shaktikanta Das had then said that the Indian economy is a “picture of resilience and momentum” amid an unsettled global economic backdrop.
Issues to ponder
Bhide said that transmission of monetary policy in the system has been affected by the changing landscape and has posed issues which need to be clearly recognised.
“Another indicator we always look at as a positive indicator for the economy is the growth of credit. Is growth of credit an indicator of intentions on investment or is it an indication of lack of adequate income to finance whatever investments have been made?” he asked .
It will then be crucial to see whether domestic demand itself will be able to sustain the growth in the coming year and be able to take this growth to the expectation of better than 7 per cent GDP growth.
“While all engines of growth are now firing, is it possible to sustain this growth? Is this growth going to put pressure on inflation again because currently we’re looking at growth which is not inflationary. So are we in a position to manage this scenario where we’re looking at acceleration of growth while maintaining the moderate levels of inflation?” he questioned.