Officials back Dholakia's objection to RBI's growth assessment for 2017-18

Divergence between CSO advance estimates and central bank's projections of GVA growth

As advance estimates by the statistics office for growth in gross value added (GV) came much below the Reserve Bank of India's (RBI) projections for 2017-18, officials in the Central Statistics Office (CSO) point to an assessment by a Monetary Policy Committee (MPC) member who said the central bank had overestimated the numbers, ahead of the December policy review.

 

Another official in the finance ministry said the assessment by the member, R Dholakia, was correct so far as the issue of cut in the policy rate was concerned.

 

According to minutes of the MPC meeting in December, Dholakia said RBI overestimated growth. While the CSO puts GVA growth at 6.1 per cent, RBI had projected 6.7 per cent.

 

Dholakia, a professor of economics at IIM-Ahmedabad, had pitched for a 25 basis points (bps) rate reduction in the December meeting. He had also predicted the fiscal deficit mightexceed the target of 3.2 per cent of Gross Domestic Product this year, with nominal growth to grow slower than expected. Inflation remains under reasonable control, he had argued. However, RBI had retained the policy rate at the same level.

 

Senior officials in the government say Dholakia is the only one to have correctly gauged the economic situation and that policy rate cuts are required to spur the economic growth engine.

 

"RBI growth estimates seem an overestimate. Only Dholakia's assessment in the MPC is on the mark. There should have been a rate cut and there needs to be a rate cut," said a senior official.

 

This brings back the divide between government and RBI over rates. Chief economic adviser Arvind Subramanian had in the second volume of the Economic Survey for 2017-18 said RBI got its inflation projection wrong by more than 100 bps for six of the past 14 quarters.

"I am not in agreement with the assessment of RBI for both the CPI (consumer price index) inflation and economic growth prospects in the near term