indian government flags growth risks and pushes for monetary
Last Updated : GMT 05:21:58
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Arab Today, arab today
Last Updated : GMT 05:21:58
Arab Today, arab today

Indian government flags growth risks and pushes for monetary

Arab Today, arab today

Arab Today, arab today Indian government flags growth risks and pushes for monetary

A man checks his phone outside the Reserve Bank of India
New Delhi - Arabs Today

India called on Friday for more monetary easing as it flagged risks to economic growth and budget targets, citing a series of disinflationary impulses weighing on Asia’s third-largest economy.
In its mid-year economic survey, the Finance Ministry said “tighter” monetary policy meant real interest rates in India were substantially higher than in comparable emerging economies, further clouding the economic outlook.
Faster monetary easing, the ministry argued, would help deleverage corporate balance sheets and restore banks’ profits, helping the economy realize its full potential.
While it retained an official growth forecast of 6.75 percent to 7.5 percent for the fiscal year to March 2018, the report highlighted a stronger rupee, deepening farm distress and a disruption in business activity following the launch of a new sales tax, as headwinds.
“There has been an across-the-board deceleration,” said chief economic adviser Arvind Subramanian, the survey’s author. “It is less likely than before that we will reach the upper end of the range.”
Growth slowed to 6.1 percent in the March quarter, its lowest in more than two years, following monetary reform ordered by Prime Minister Narendra Modi last November to purge high-value banknotes from circulation.
The subsequent launch of a national Goods and Services Tax (GST) has caused chaos on the ground as ambiguous rules have left firms confused on how to price their products.
In a sign of things to come, business surveys showed both services and manufacturing contracting at their fastest rate in years in July, the month that the GST was launched.
Disinflationary pressures allowed the Reserve Bank of India (RBI) last week to cut its main policy rate — the first easing by an Asian central bank this year — by 25-basis points to 6 percent.
Yet Subramanian, Finance Minister Arun Jaitley’s top economic adviser, said the policy repo rate was still 25-75 basis points above the neutral rate.
Although he did not fault the RBI’s new inflation-targeting framework, he did question the approach of its Monetary Policy Committee.
“Both expected inflation and GDP (gross domestic product) are subdued relative to their equilibrium levels,” the survey said. “The conclusion is inescapable that the scope for monetary easing is considerable.”
Even as the RBI resumed cutting rates, it warned inflation could accelerate to as high as 4.5 percent in October-December. The economic survey, however, took the view that India’s inflation, which cooled to a record low of 1.54 percent in June, is undergoing a “structural shift.”
It expects headline inflation to remain below the RBI’s medium-term target of 4 percent through to the end of March 2018 on the back of normal summer rains and the deflationary impact of farm loan waivers.
Four Indian states including Uttar Pradesh, which has a population bigger than Brazil’s, have agreed to waive billions of dollars in farm loans to offer relief to farmers reeling from losses caused by bad weather.
Subramanian said the loan waivers were likely to be deflationary as the states would have to either raise taxes or cut spending to keep their budget deficits in check.

Source: Arab News

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