Reserve Bank of India (RBI) Governor Shaktikanta Das asserted on Tuesday that high interest rates are not obstructing economic growth. He emphasized that the RBI's monetary policy will "unambiguously" focus on reducing inflation.
Speaking at an event organized by the Bombay Chamber of Commerce and Industry, Das stated that India is on the brink of a "major structural shift" in its growth trajectory, with the potential to sustain an 8% real GDP growth annually. He dismissed concerns that elevated interest rates are detrimental to growth, citing sustained growth as evidence that monetary policy and interest rates are not impediments.
Das highlighted that the RBI's nowcasting team projects a 7.4% GDP growth for the June quarter, surpassing the central bank’s estimate of 7.3%. He expressed confidence in achieving the RBI's forecasted 7.2% growth for FY25. The positive growth outlook, according to Das, allows the RBI to focus on inflation without hindrance.
Using a chess analogy, Das underscored the critical nature of maintaining focus on inflation moderation, warning that a single adverse weather event could push inflation above 5%. He credited monetary policy actions for the reduction in inflation from 7.8% in 2022 to 4.7% currently.
Lower inflation, Das argued, is essential for sustainable growth, as high inflation reduces competitiveness and investment attractiveness, and erodes purchasing power, particularly among the poor.
Das also noted a shift from government-driven growth to private capital expenditure, particularly in infrastructure sectors like cement and steel. Das advocated for a "multi-sectoral" approach to drive growth, emphasizing that India cannot rely solely on manufacturing or services.
He reassured that India's banking and non-bank sectors are healthy, with improved financial stability metrics. Das also praised structural reforms such as GST, the bankruptcy code, and flexible inflation targeting for bolstering the economy.
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