Indian Reserve Bank of India (RBI) Governor Shaktikanta Das said on Tuesday that high interest rates are not hampering economic growth. He also made it clear that the focus of monetary policy will remain on reducing inflation. Addressing a program of industry body Bombay Chamber of Commerce and Industry, Das said that the country is on the threshold of a ‘major structural change’ in the level of economic growth. The country is moving on a path where 8 percent real GDP growth can be maintained on an annual basis.
Higher interest rates have no impact on growth
He said, “Generally, if the growth rate is good and it is maintained, then it is a clear indication that your monetary policy and your interest rates are not becoming an obstacle in the path of growth.” Amid the ongoing debate on high interest rates affecting growth, Das said that all such concerns are baseless and the pace of growth is intact. He said that RBI’s ‘Nowcasting Team’ is estimating GDP (gross domestic product) growth rate to be 7.4 percent for the June quarter based on dynamic elements. This is more than the central bank’s own estimate of 7.3 percent.
Growth rate will be 7.2% in 2024-25
According to Das, he is confident that the economy will grow at the RBI’s estimate of 7.2 percent in the financial year 2024-25. He said, “The outlook for a good growth rate clearly gives us scope to focus on inflation.” Das gave the example of chess to focus on reducing inflation in the coming times. He made it clear that one wrong move can deviate us from the path. He said that it is necessary to pay attention to inflation promptly, as even a single adverse weather event can take inflation above five percent. The RBI Governor said that due to the steps taken under the monetary policy, inflation has come down from the highest level of 7.8 percent in 2022 to 4.7 percent at present.
It is most important to tackle high inflation
He said that a low level of price rise can ensure sustainable growth. Das said, “High inflation affects the competitiveness of the economy, making the economy an unfavorable destination for both domestic and foreign investment. Most importantly, high inflation will mean reducing the purchasing power of people, especially the poor.” He said that in the last three years, government expenditure has been driving growth. Now there is clear evidence that private capital expenditure is increasing and the most interest is being seen in infrastructure-related sectors like cement and steel. Das also said that the economy will move forward only when there is a boom in various sectors and he talked about giving emphasis to all sectors to accelerate growth. He has said this amid some experts, including former RBI Governor Raghuram Rajan, calling for India to focus on the service sector for growth. The RBI Governor said that a large economy like India cannot depend on either manufacturing or service to achieve its growth ambitions.
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