Skip to main content

Officials back Dholakia´s objection to RBI´s growth assessment

Officials back Dholakia´s objection to RBI´s growth assessment
As Advance Estimates by the statistics office for growth in gross value added (GV) came much below the Reserve Bank of India´s (RBI) projections for 201718, officials in the Central Statistics Office (CSO) point to an assessment by a Monetary Policy Committee (MPC) member who said the central bank had overestimated the numbers, ahead of the December policy review.
Another official in the finance ministry said the assessment by the member,RDholakia, was correct so far as the issue of cut in the policy rate was concerned.According to minutes of the MPC meeting in December, Dholakia said RBI overestimated growth.
While the CSO puts GVA growth at 6.1 per cent, RBI had projected 6.7 per cent.Dholakia,a professor of economics at IIMAhmedabad, had pitched for a 25 basis points (bps) rate reduction in the December meeting.
He had also predicted the fiscal deficit might exceed the target of 3.2 per cent of Gross Domestic Product this year, with nominal growth to grow slower than expected.
Inflation remains under reasonable control, he had argued.However, RBI had retained the policy rate at the same level.Senior officials in the government say Dholakia is the only one to have correctly gauged the economic situation and that policy rate cuts are required to spur the economic growth engine.
“RBI growth estimates seem an overestimate.Only Dholakia´s assessment in the MPC is on the mark.There should have been a rate cut and there needs to be a rate cut,” said a senior official.This brings back the divide between government and RBI over rates.
Chief economic adviser Arvind Subramanian had in the second volume of the Economic Survey for 201718 said RBI got its inflation projection wrong by more than 100 bps for six of the past 14 quarters.
“I am not in agreement with the assessment of RBI for both the CPI (consumer price index) inflation and economic growth prospects in the near term.The real cause of concern right now is economic recovery and its slow pace.
Fiscal space is more or less exhausted but the space for monetary boost has fortunately been available now for a relatively long period.” Dholakia had said, according to the minutes of the MPC meeting.
In the August 2 meeting, when the policy rate was reduced by 25 bps, Dholakia had pitched fora50 bps reduction.The government breached the fiscal deficit target given in the Budget for 201718 by November itself at 112 per cent of its Rs 5.5 trillion target, the highest deviation in the first eight months ofafinancial year since 2008-09, year of the global financial crisis.

The Centre also announced it would additionally borrow Rs 500 billion from the market.Dholakia had said in the meeting that the fiscal deficit as percentage of GDP might exceed the target because nominal GDP would grow much slower than the assumed number (11.75 per cent) in the Budget on account of lower inflation and substantial slowing in real growth.

The CSO has estimated nominal GDP growth at 9.5 per cent for FY18.Everything remaining constant, the fiscal deficit will go up to 3.3 per cent of GDP on account of nominal GDP slowdown.“The expectation of growth recovery by RBI during the JuneSeptember quarter turned out to beasubstantial overstatement,” Dholakia had said in the meeting.
As against RBI´s expectation of 6.4 per cent, the growth of real GVA during the quarter turned out to be 6.1 per cent.
“Yet, RBI has not revised its growth forecast from the earlier 6.7 per cent for 201718. This implies RBI now expects higher growth of 7 and 7.8 per cent, respectively, in the third and fourth quarters of 201718. This is highly improbable without any policy rate cut because fiscal space is practically nonexistent,” he had further said.
Senior officials in the govt say Dholakia is the only one to have correctly gauged the economic situation and that policy rate cuts are required to spur the economic growth engine


The Business Standard, New Delhi, 12th January 2018
 

Comments

Popular posts from this blog

Budget: Startup sector gets new Fund of Funds, FM to allocate Rs 10K cr

  The Indian startup sector received a boost with Finance Minister Nirmala Sitharaman announcing the establishment of a new fund of funds (FoF) in the Budget 2025. The minister unveiled a fresh FoF with an expanded scope, allocating Rs 10,000 crore. The initial fund of funds announced by the government with an investment of Rs 10,000 crore successfully catalysed commitments worth Rs 91,000 crore, the minister said.   “The renewal of the Rs 10,000 crore commitment to the Fund of Funds for alternative investment funds (AIFs) is a significant step forward for the Indian startup and investment ecosystem. The initial Rs 10,000 crore commitment catalysed Rs 91,000 crore in investments, and I fully expect this fresh infusion to attract an additional Rs 1 lakh to Rs 1.5 lakh crore in capital,” said Anirudh Damani, managing partner, Artha Venture Funds.   Damani further added that this initiative will provide much-needed growth capital to early-stage startups, further strengthenin...

After RBI rate cut, check latest home loan interest rates of top banks for loans above Rs 75 lakh

  The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points from 6.50% to 6.25% in its monetary policy review as announced on February 7, 2025. After the RBI repo rate cut, banks such as SBI, Canara Bank, PNB, and Union Bank among others have cut their repo linked lending rates. Most other banks are also expected to cut their lending rates in line with the RBI rate cut. After banks cut their lending rates, their home loan borrowers will have to pay less interest. Normally, when a lender cuts the lending rate, borrowers get two options: Either to go for a reduction in EMIs or reduce the tenure of the loan. The second option will help the borrowers clear their home loan outstanding faster. In case, the borrower goes for reduction in EMI then the lower lending rate of the lender would mean lower Equated Monthly Installment (EMI) for borrowers.   EMI is the amount you will pay on a specific date each month till the loan is repaid in full.A repo rate-linked home ...

GST collections rise 9.9% to exceed Rs 1.96 trillion in March 2025

  Gross GST collection in March grew 9.9 per cent to over Rs 1.96 lakh crore, government data showed on Tuesday. GST revenue from domestic transactions rose 8.8 per cent to Rs 1.49 lakh crore, while revenue from imported goods was higher 13.56 per cent to Rs 46,919 crore. Total refunds during March rose 41 per cent to Rs 19,615 crore. After adjusting refunds, net GST revenue stood at over Rs 1.76 lakh crore in March 2025, a 7.3 per cent growth over the year-ago period.       - Business Standard 02 th March, 2025