RBI Governor: India is moving towards 8% GDP growth

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Reserve Bank of India Governor Shaktikanta Das on Tuesday said there cannot be any wavering or distraction at this stage in the battle against inflation, amid calls from two monetary policy committee (MPC) members for a rate cut.

He also added that India is at the threshold of a major structural shift in its growth trajectory moving towards 8 per cent GDP growth in a sustained manner.

MPC members Ashima Goyal and Jayant Varma had proffered solid arguments for a 25-basis points repo rate cut at the committee’s last meeting as they felt that not doing so would impact growth.

“Inflation is moderating but moderating at a slow pace. We are still at 4.7 per cent (May retail inflation reading), in striking distance of 5 per cent. One severe weather event, the vegetable prices may go up and we will be at 5 per cent.

“So, we have to navigate our path towards the 4 per cent inflation target with a clear and unambiguous focus and commitment to bring it down to 4 per cent. There cannot be any wavering/ distractions at this stage. Any distraction at will severely compromise growth,” cautioned Das at the Bombay Chamber of Commerce and Industry’s 188th annual general meeting.

Cricket & Chess

Giving the analogy of cricket and chess, the Governor said: “In cricket, if you play one shot very badly, you can play the next shot very well…But, in chess, if you make one wrong move, you are finished, you can lose the game.

“Like in the game chess, in the battle against inflation, one wrong move can just distract you, throw you off track and coming back to the track will be far more costly and will take much more time.”

So, the central bank cannot afford to make any mistake, or any policy error, or any wrong move.

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“We have to decide our monetary policy actions, primarily driven by the inflation numbers that we have and the outlook that we have because monetary policy is always forward looking.

“Now, normally, if growth is well sustained, then it is a clear sign that the monetary policy and the interest rates are not acting as an impediment to growth,” Das said, adding in the last three years, the average GDP growth was 8.3 per cent even as India is at the threshold of a major structural shift in its growth.

Mixed factors

Considering the mix of factors, the Governor observed that he does not draw comfort that inflation is going to reach 4 per cent tomorrow or day after.

“It (inflation) will take a few more months (to reach 4 per cent target). I see some optimism in the next financial year. At the moment, growth is well sustained, inflation is moderating, but we still have a distance to cover.

“So, therefore, we have to be very patient, very careful and navigate in a very careful manner, not committing any mistakes. We are sanguine about our growth. We are also sanguine about our disinflation process of achieving 4 per cent target down the road,” Das said.

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In Q4FY24, the country recorded 7.8 per cent GDP growth and RBI expects GDP growth of 7.3 per cent in Q1FY25.

“So, growth is well-sustained and the outlook for FY25 looks very optimistic. We are very sanguine about the fact that India will record 7.2 per cent growth in FY25.

“So, a good growth outlook gives us the necessary space to completely and unambiguously focus on inflation. So, therefore, that is our target,” the Governor said.