Economy: Monetary policy has its limits, hence the need for structural reforms for growth: RBI Governor
- Finance Minister Nirmala Sitharaman will present the budget on February 1, the challenge before the government to increase GDP growth.
- In view of the decline in GDP growth, the RBI had reduced the repo rate five times in a row last year.
- RBI kept interest rates stable in December, lowering GDP growth estimate from 6.1% to 5%.
MUMBAI: RBI Governor Shaktikanta Das says monetary policy has some limitations, so structural reforms and financial measures are needed to increase growth. Das says efforts should be given to food processing industries, tourism, e-commerce, startups and efforts to be a part of the global supply chain. He discussed this at the program of St. Stephen’s College in Delhi on Friday. Das’s statement is seen in the context of declining GDP growth and the coming budget.Growth in the September quarter fell to just 4.5%, its lowest in 6 years. Finance Minister Nirmala Sitharaman will present the budget on 1 February. The challenge before the government is to increase growth.
There will be more impact, if the states also increase capital expenditure: Das
The RBI governor says that the central government is focusing on infrastructure spending, which will increase the growth of the economy. But, states should also contribute to growth by increasing spending, this will have manifold effects. Das said it is a big challenge for the central bank to forecast the country’s potential growth. Despite this, opinions were kept in view of the demand, supply and inflation rate so that appropriate policies can be implemented on time.
RBI took decisions considering global uncertainties
Das said that in the last few months, the monetary policies of central banks around the world were changing due to changes in the growth trend in many countries. In view of this uncertainty, RBI also constantly changed its assessment. This helped in estimating the slowdown in GDP growth of the country and decided to reduce the repo rate to increase the growth.
The next RBI meeting on interest rates will be held in February
Considering the slowdown in GDP growth, the RBI had cut the repo rate five times in a row last year by 1.35%. The December review held interest rates stable and projected annual GDP growth from 6.1% to 5%. The RBI maintained an approachable view of monetary policy. That is, further reduction in the repo rate is possible. The next meeting of the Monetary Policy Committee (MPC) of RBI will be held on 4-6 February.
