RBI Governor Shaktikanta Das on inflation, India's growing GDP and why he is confident about India's growth

RBI Governor Shaktikanta Das on inflation, the consumer lending space, and why he is confident about India’s growth

Shaktikanta Das, Governor of the Reserve Bank of India, took charge of the central bank in December 2018. Since then, he has guided RBI with a steady hand during major disruptions such as the pandemic, global geopolitical tensions and economic pessimism, and also brought inflation under control, among other things. The RBI Governor, in an exclusive interaction with Business Today TV on the sidelines of the recent annual World Economic Forum meeting in Davos, talks about the mood of the global economy, inflation, economic resilience, the India growth story, and more. Edited excerpts:

Last year, the mood around the global economy and the pessimism that existed among CEOs was quite a bit. How is the mood as far as the global economy is concerned? What’s your reading of the situation, particularly the supply-side bottlenecks that caused an inflationary spiral across the world? 

At the moment, the mood all around the world is a lot better. When Covid-19 started, and more so when the Ukraine war started, followed by the spike in inflation, there was widespread apprehension that the world economy as a whole is moving towards recession.

In the past, we have seen that whenever advanced economies resorted to monetary policy tightening to tackle the problem of high inflation, those cycles usually ended in a recession. This time around, not unnaturally, there were apprehensions that advanced economies and emerging market economies will enter into a zone of recession... but that has not happened. That has not happened because I think this time around, the inherent resilience of individual economies—both advanced economies and emerging market economies—has withstood the pressures much better. Therefore, recession has not happened… but nonetheless growth has slowed down. While there is confidence and optimism that recession has not happened, there is also the other realisation that global growth has slowed down.

I would say the mood is much better than last year because from an apprehensive mood of a recession or a hard landing, now the mood [globally] is expectation of a soft landing but remaining in a territory of low growth.

Coming to inflation which had spiked in 2022 almost everywhere, it has moderated. That is a matter of satisfaction for every central bank, for every country, but at the same time, individual countries are yet to reach their target rates… it’s the last mile that is proving to be challenging. So, the mood is much better, but at the same time there is a mood of cautiousness about how the future will play out, more so in the background of continuing geopolitical tensions.

So far as India is concerned it is a different story. I think India has responded to the recent challenges a lot better than it had done in the past… The last four years have been a period of great volatility, [but] India has responded far better. Our inflation has moderated… it is within the target zone… we’re moving towards 4%; GDP growth has revived… [for] three successive years, including this year, [we’ve had] real GDP growth of 7% or above; for 2024-25, too, our expectation is that the GDP growth will be about 7%. Therefore, the India story is definitely a story of greater resilience compared to the rest of the world.

Do you see geopolitical flashpoints impacting India in any manner? 

You see, whatever happens today in the world, the fact is that India is a lot more integrated with the global economy, and we are one of the major players there. So, naturally, whatever happens worldwide will affect India. But I think our inherent resilience, our macroeconomic stability and our approach in the recent years, as we have seen, is different from other countries. So, India, I would like to believe—and I say so on the basis of clear analysis of the facts on ground—that India will be able to deal with these challenges a lot better… India is better placed than many countries to deal with these challenges.

Recently, the IMF said that it will have to revise India’s growth forecast upwards. Is your own reading that for the current year, growth could be even better than what has been projected by the RBI’s economists themselves? 

You see, we had projected 7% towards the end of October. Our previous projection for the current year was 6.5%. But we projected 7% in October and in the December monetary policy. The projection given by the National Statistical Office (NSO; of 7.3%) came in January, so obviously they had data for one more month, [and] they have access to several other data [points] to which we don’t have access. So, I think growth in the current year will be around 7.3%; if it is better, it is always welcome. What is interesting in all this process is that the momentum of economic activity is still holding its ground and continues to be quite strong. And that gives us the confidence to say that next year’s growth will also touch 7%.

Between the last time that you publicly spoke to now, what is your reading of the consumer lending space and the overall approach to it? As far as consumer lending is concerned are there any concerns that may bother the RBI?

All segments of lending, all segments of the credit market are under our supervision, and we monitor them very clearly. Wherever we see some incipient signs of a possible stress, we act pre-emptively. So, whatever we have done in the consumer lending space, in the personal loans space, was because we thought that it is perhaps leading towards a kind of a stress, and we wanted to avoid that. They were pre-emptive measures. But even now, the numbers are within reasonable limits, and we have no major cause for concern.

I wanted your reading of the inflationary situation. How is the price situation likely to pan out in 2024? 

CPI inflation… headline inflation is moderating and this trend of moderation towards 4% will continue—that is our expectation, I have said elsewhere that next year, that is FY25, the average inflation will be 4.5%. Inflation month after month—you’re talking about the calendar year 2024—our expectation at this point of time is that it will moderate. Within inflation, the core part of inflation has also moderated significantly; it is in fact little below 4% now. And core inflation is substantially impacted by monetary policy actions. So, core inflation has come around 3.8% or so. It’s food inflation that needs careful monitoring, because food inflation is exposed to external [risks]. There are two external risk factors—like some disruption in supply chain or climate-related changes or domestic weather-related events; you had heavy rain in one month and suddenly the prices of tomato go up, causing vegetable inflation to impact the headline inflation in a substantial manner. So given these uncertainties with regard to food inflation, the volatility is built around it because of weather-related events and because of external developments, that is one area that needs careful monitoring.

So far as the Rabi crop is concerned, initially, there were fears of Rabi sowing area falling short of the annual average. But as we speak here, I think the shortfall is very, very marginal compared to last year’s bumper crop. Rabi sowing is now almost at last year’s level. That is also a positive for domestic food inflation. But the fact that there is volatility coming from external factors, external sources, and the uncertainty around weather-related events, they need to be carefully watched, especially from the point of view of food inflation.

Would it be possible for you to share what you’re asked about the Indian economy by people from across the globe? 

I think there is a lot of interest to know how India has managed it with regard to maintaining this kind of macroeconomic resilience, this kind of financial stability. Basically, people like to know how India has been able to manage it. So there is a lot of interest in that area. But there is evidence of growing confidence on India and the potential and the robustness of the Indian economy.

On one hand at the fiscal level at the central government level, we have Modinomics. Has anyone told you that they are also following ‘Das Capital’ very closely? 

That’s for people like you to assess or say, but we should not get carried away by such [epithets]. On a serious note, I think we have to remain focussed. We have achieved all this… banking sector has shown remarkable turnaround, the economy is showing its resilience, financial sector is remaining stable. So, we have to not only preserve this, but we have to further build on that. I think that should be our focus.