RBI may keep interest rates unchanged.
By Sreekanth A Nair
India’s economic growth has improved in the second quarter of the current financial year. The Indian economy expanded at around 7.4 percent in the July-September quarter, compared to 7 percent in the first quarter.
Even though less than expected rain has affected agricultural growth, increasing domestic demand and manufacturing activity may compel the Reserve Bank of India (RBI) to keep interest rates unchanged.
Industrial production data have shown that output of manufacturing, mining and utilities firms showed a growth of 4.7%, the strongest growth since the three months ended June, 2011.
This, in fact, will be a great relief to the prime minister, Narendra Modi, since his party suffered a big defeat in the state elections in Bihar.
The government is focusing on key reforms to give momentum to the economy. A few days back Modi had said that the government is planning to implement more reforms.
The government has conducted a discussion with leaders in the opposition about implementing Goods and Services Tax (GST) that unifies the sales tax in all states.
In the opinion of experts, GST, if implemented in the right way, will help GDP of India to go up to 8%.
Reuters quoted Aditi Nayar, an economist at ICRA, the Indian arm of credit rating agency Moody’s, saying, “higher government capital spending, as well as efforts to facilitate clearances and simplify approvals have contributed to a pickup in investment activity.”
At the same time, the economy is facing some adverse issues like reducing exports and drought in different parts of the country. Indicators like bank credit growth and job creation are also not healthy.
“If some important bills get passed, then it will be positive for investor and business sentiment. That would translate to increased economic activity,†Saugata Bhattacharya, chief economist at Axis Bank, told The Wall Street Journal.
However, India remains a strong economy while most of the emerging economies like Brazil, Russia and China are showing signs of a slowdown.