RBI sees economy growing at 7.4% in FY16; above WB projection

Reserve Bank today kept its growth projections for Indian economy unchanged at 7.4 per cent for the current fiscal, a tad higher than 7.3 per cent forecast by the World Bank.

The 6th Bimonthly Monetary Policy Statement, 2015-16, announced by RBI Governor Raghuram Rajan has pegged the growth to quicken to 7.6 per cent in the next fiscal.

"The Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude.

"For 2016-17, growth is expected to strengthen gradually, notwithstanding significant headwinds. Based on an assessment of the balance of risks, GVA (Gross Value Added) growth for 2016-17 is projected at 7.6 per cent", Rajan said while announcing the policy.

He said the current momentum of growth is reasonable, though below what should be expected over the medium-term.

RBI stressed that the underlying growth drivers need to be rekindled to place the economy durably on a higher growth trajectory.

The apex bank kept the key repo rate, at which it lends to commercial banks, unchanged at 6.75 per cent, largely in line with market expectations.

"The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation," Rajan said.

He added that structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth, given the condition retail inflation remains at RBI's target of 5 per cent by end of 2016-17.

RBI expects the growth in the next fiscal to strengthen gradually, notwithstanding the significant headwinds.

Weak domestic private investment, concerns on stalled projects, excess capacity and sluggish external demand dampening export to act as headwinds, it said.
"Expectations of a normal monsoon after two consecutive

years of rainfall deficiency, the large positive terms of trade gain, improving real incomes of households and lower input costs of firms should contribute to strengthening the growth momentum," added the policy statement.

The revival of private investment, in particular, has a crucial role, especially as the climate for business improves and fiscal policy continues to consolidate, it said.

RBI said the current account deficit and commitment to fiscal rectitude need to be maintained so that the foundations of stable and sustainable growth are strengthened.