RBI cuts GDP growth, hopes to recover growth in second half of 2019-20

Reserve Bank on Friday sharply cut its ecomic growth projection for this fiscal to 6.1 per cent from 6.9 per cent earlier, but expressed hope that growth will recover in second half of 2019-20. central bank's estimates come in wake of GDP growth sliding to a six-year low of 5 per cent in June quarter, on a massive slowdown in consumption and private sector investments. government has taken a slew of measures, including a massive 10 percent point cut in corporate taxes and promises of front-loing bank recapitalisation to support number.

Monetary policy report

In monetary policy report released on Friday, central bank said growth momentum will pick up with every quarter on factors like government measures, its policy rate cuts and also favourable base effects. GDP growth will recover to 7 per cent in 2020-21, it said, ding, near-term outlook of ecomy is "fraught with several risks". Enumerating reasons for its sharp cut in growth estimate, RBI said, expected pick-up in both private consumption and investment failed to materialise, and exports lost momentum under weight of slump in world tre. "Taking into account baseline assumptions, survey indicators, reductions in policy repo rate since February 2019, base effects and model forecasts, real GDP growth is projected at 6.1 per cent in 2019-20 -- 5.3 per cent in Q2, 6.6 per cent in Q3, 7.2 per cent in Q4 -- with risks evenly balanced, monetary policy statement said. An escalation of tre tensions, a hard or -deal Brexit and increased volatility in global financial markets pose downside risks to baseline growth path, it said.

Positive outcome

On upside, GDP growth momentum can be helped by government's measures in August-September to boost growth and investment policy reforms on FDI, upfront release of funds for recapitalisation of public sector banks (PSBs), merger of PSBs, it said. Or steps that will help pick up growth include incentives for exports and real estate, reduction in corporate income tax rate along with a faster resolution of stressed assets, and a faster pace of transmission of past repo rate cuts, it ded. A half-yearly survey of professional forecasters conducted by RBI pegged GDP growth to come at 6.1 per cent and move up to 7 per cent in 2010-21, same as central bank's own estimates.

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About auto sector

On auto sector, statement attributed slowdown in sales to "shocks" like a slump in demand, liquidity crisis in show banks and regulatory measures to enhance safety and security of cars. central bank also ruled that corporate sector is t ramping up investments despite capacity utilisation of existing assets rising close to long-term aver levels for several quarters and hoped that recent measures will help kick-start Capex cycle. RBI has also revised slightly urds retail inflation projection to 3.4 per cent for second quarter of 2019-20, while retained projections at 3.5-3.7 per cent for second half of fiscal and 3.6 per cent for first quarter of 2020-21, with risks evenly balanced. Goverr Shaktikanta Das has repeatedly said that when re is available, central bank has to dress concerns on growth and help revive ecomy.

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