Reserve Bank of India Governor Shaktikanta Das stated in his statement on the MPC decisions that India’s real GDP growth for the financial year 2021-22 is estimated to stay at 7.2 per cent much higher than pre-pandemic levels on recovery in domestic activity. He explained that real GDP growth for Q1, Q2, Q3 and Q4 will stand at 16.2 per cent, 6.2 per cent, 4.1 per cent and 4 per cent respectively.
He explained, “The recovery in domestic economic activity is gathering strength. Rural consumption should benefit from the likely normal south-west monsoon and the expected improvement in agricultural prospects. A rebound in contact-intensive services is likely to bolster urban consumption, going forward.”
He also noted that inflation is likely to remain above the upper tolerance limit of 6 per cent through the first three quarters of the current financial year, i.e. 2022-23. Das further said that inflation for the time period will remain pegged at 6.7 per cent. Inflation for Q1, Q2, Q3 and Q4 are, pegged at 7.5 per cent, 7.4 per cent, 6.2 per cent and 5.8 per cent.
The RBI Governor mentioned, “With the assumption of a normal monsoon, in 2022 and average crude oil price in the Indian basket of $105 per barrel, inflation is now projected at 6.7 per cent in 2022-23.”
Das furthermore underscored that consumer price-based inflation or CPI headline inflation went up from 7 per cent in March to 7.8 per cent in April given the increase in major constituents. He explained, “Food inflation pressures accentuated, led by cereals, milk, fruits, vegetables, spices and prepared meals. Fuel inflation was driven up by a rise in LPG and kerosene prices. Core inflation (i.e. CPI excluding food and fuel) hardened across almost all components, dominated by the transport and communication sub-group.”
Going further, Governor said the MPC unanimously decided to do away with its accommodative stance to ensure that inflation figures remain well within the target, RBI Governor Shaktikanta Das said in his monetary policy committee (MPC) briefing. He noted accommodation has been “withdrawn to ensure inflation remains within target going forward supporting growth.”
RBI’s announcement on inflation can be a cause of worry, according to ANAROCK chairman Anuj Puri. Puri explains, “Considering that inflation continues above its target zone of 6 per cent, a hike was inevitable, and it will doubtlessly have some repercussions on housing uptake. The RBI is tasked with controlling the spiraling inflation in the country but must simultaneously be careful to not hurt demand recovery. This is a tightrope walk under the best of circumstances. Overall, high inflation with low GDP can be [a] cause of worry but as of now the Indian economy remains robust.”