RBI projects GDP growth at 7.2% for 2019-20

CPI inflation forecast scaled down to 2.9-3.0% for H1 of 2019-20 from 3.2-3.4% earlier

The Reserve Bank of India (RBI) in its First Bi-monthly Monetary Policy Statement, 2019-20 released on 04 April 2019 has projected GDP growth for 2019-20 at 7.2%, in the range of 6.8-7.1% in H1 of 2019-20 and 7.3-7.4% in H2 with risks evenly balanced. The RBI had projected GDP growth for 2019-20 in the February policy at 7.4% in the range of 7.2-7.4% in H1, and 7.5% in Q3 with risks evenly balanced. However, the growth forecast is scaled down with some signs of domestic investment activity weakening as reflected in a slowdown in production and imports of capital goods. The moderation of growth in the global economy might impact India's exports. On the positive side, however, higher financial flows to the commercial sector augur well for economic activity. Private consumption, which has remained resilient, is also expected to get a fillip from public spending in rural areas and an increase in disposable incomes of households due to tax benefits. Business expectations continue to be optimistic.

The path of CPI inflation is revised downwards to 2.4% in Q4:2018-19, 2.9-3.0% in H1:2019-20 and 3.5-3.8% in H2:2019-20, with risks broadly balanced. In the sixth bi-monthly monetary policy resolution of February 2019, CPI inflation was projected at 2.8% for Q4:2018-19, 3.2-3.4% for H1:2019-20 and 3.9% for Q3:2019-20, with risks broadly balanced around the central trajectory. Actual inflation outcomes averaged 2.3% in January-February.

The inflation path during 2019-20 is likely to be shaped by several factors. First, low food inflation during January-February will have a bearing on the near-term inflation outlook. Second, the fall in the fuel group inflation witnessed at the time of the February policy has become accentuated. Third, CPI inflation excluding food and fuel in February was lower than expected, which has imparted some downward bias to headline inflation. Fourth, international crude oil prices have increased by around 10% since the last policy. Fifth, inflation expectations of households as well as input and output price expectations of producers polled in the Reserve Bank's surveys have further moderated.

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