RBI policy may change if IIP slides further: Basu

Within days of India reporting a 16-month low industrial growth of 4.4 per cent for September, a top government economic advisor on Tuesday said industry was expected to post recovery in October, otherwise the Reserve Bank of India (RBI) will have to change its tight policy stance.

“The data you will get on December 12 (for October) should see reasonably good recovery. If that does not happen, we will have to think in terms of policy change,” Chief Economic Advisor Kaushik Basu said. Speaking on the sidelines of a summit at the International Management Institute, he said growth in the Index of Industrial Production (IIP) in the last two months had been disappointing. “However, going by the base effect, I expect a sharp recovery over the next month (October), especially in the manufacturing sector, ,” Basu said, adding the country was on track for a good financial year despite the slowdown.

He said, “I think the RBI policy has been very matured and balanced. What it does on policy rates and such things will of course have to be evaluated and decided.”

He also expected a sharp decline in inflation within weeks. “I think we are going to see in the next couple of weeks, including December, sharp decline in inflation,” Basu said.

Industrial growth fell for the second consecutive month to a 16-month low of 4.4 per cent in September. It was 6.91 per cent the previous month.

The wholesale price inflation also come down to 8.58 per cent in October, after being in double digits during the initial months of the year.

However, food inflation is still high and clocked 12.30 per cent for the week ended October 30. Combined with declining inflation and industrial growth numbers, analysts feel RBI will press the pause button on its tight money supply stance, an indication of which was given by the central bank in its November 2 policy review.

This year, RBI has raised the short-term lending (repo) and borrowing (reverse repo) rates by 150 and 200 basis points, respectively. On November 2, it had raised both the rates by 25 basis points for the sixth time this year.