After assessing the current and evolving macroeconomic situation, the Reserve Bank of India (RBI) lowered India’s real GDP forecast for the year 2015-16 to 7.4 per cent. Earlier the expectation of growth for the same period was estimated to be 7.6 per cent. However, the RBI also added that growth is expected to pick up in the latter part of the fiscal.
“Overall, lead/coincident indicators, the forward looking surveys and estimates from model-based forecasts warrant a downward revision of Gross Value Added (GVA) growth to 7.4 per cent in FY16 from the projection given in the April Monetary Policy Report (MPR),” said the RBI in its latest report that came out on Tuesday morning.
The report also said that the growth in real GVA at basic prices is expected to be around 7 per cent in the third quarter of 2015-16 before firming up to 7.6 per cent in the fourth quarter with risks evenly balanced around this projection.
The report, however, said real GVA growth is expected to pick up gradually in 2016-17 on a shallow cyclical upturn, driven by an expected normal monsoon and some improvement in external demand. But this assumes no structural changes are induced by policy measures and there is an absence of major supply shocks.
“The current environment of soft global commodity prices provides a potential upside bias to the growth projections,” the report said.
In its monetary policy review, RBI also reduced the key rate (repo) by 50 basis points from 7.25 per cent to 6.75 per cent with immediate effect.
The Finance Ministry had been building pressure on the RBI to cut rates, which will serve as a booster for the economy. The GDP expansion had slipped to 7% for the June quarter.
Apart from the rate cut, Rajan also introduced a number of measures to boost economic growth. Foreign portfolio investment limits will now be set in rupees rather than in dollars.
Tuesday’s lowered forecast for 2015-2016, has hit the hopes of the Indian economy crossing the 7.5 per cent growth mark.
(With inputs from PTI)