Economy

Published: Apr 27, 2023
Updated: Apr 27, 2023

Mixed Outlook for Economic Growth as RBI's MPC Members Debate Prospects

The Reserve Bank of India's monetary policy committee (MPC) remains divided on the prospects of economic growth, according to the minutes of their April meeting. External members expressed concerns about slowing growth, while internal members appeared more optimistic. Despite the split, all members agreed to maintain the repo rate at 6.5%. RBI Governor Shaktikanta Das emphasized the dynamic and evolving nature of the situation, while highlighting the government's focus on infrastructure spending to support investment activity.

Growth Concerns Expressed by External Members:

External member Ashima Goyal raised concerns about signs of a slowdown in certain high- frequency data. Softening non-oil non-gold imports indicated weakness in domestic demand, and slowing exports were affecting the manufacturing sector. Goyal also cautioned against further increases in real interest rates, as it could lead to a switch to a low growth path.

Inflation Risks and Monsoon Forecast:

Another external member, Jayanth Varma, identified two inflation risks since the previous policy meeting. He mentioned the potential spike in global crude oil prices due to OPEC+ production cuts and the uncertainty surrounding the monsoon forecast. With limited confidence in mid-April, the MPC had to operate under the assumption of a normal monsoon for the time being.

Inflation as the Biggest Risk:

Deputy Governor M D Patra emphasized that inflation remained the primary risk to the Indian economy. He noted that demand pressures, particularly for contact-intensive services, were keeping inflation elevated and generalized. Patra highlighted the vulnerability of future inflation to various supply shocks, urging the MPC to remain vigilant and ready to take preemptive action.

Differing Views on Growth:

RBI Governor Shaktikanta Das reiterated his belief in the buoyancy of domestic growth impulses in the last quarter. He attributed this to the government's focus on infrastructure spending, which would support investment activity. Internal member Rajiv Ranjan expressed optimism about improved growth outlook for 2023-24, with signs of investment revival and positive developments in the rabi harvest and international food prices.

Uneven Growth and External Demand Conditions:

External member Shashanka Bhide pointed out the uneven growth across production sectors and subdued growth in recent quarters of FY23. He highlighted weak external demand conditions as a key concern for future growth. Bhide also noted the potential downside risk from adverse weather conditions affecting Indian agriculture.

Eyes on outcome

The MPC meeting revealed contrasting opinions on economic growth prospects. External members expressed concerns about signs of a slowdown, weak external demand, and potential downside risks. Internal members maintained a more positive outlook, citing infrastructure spending, investment revival, and improvements in the rabi harvest. Inflation remained a significant risk, with the MPC emphasizing the need to balance price stability and growth while remaining vigilant to potential shocks. The RBI's decision to maintain interest rates was seen as a cautious and temporary pause, allowing for further assessment of the evolving economic landscape.