Economic Growth

Reserve Bank of India

The Reserve Bank of India has observed that the 7.7% GDP growth in the last quarter indicates the “economy is well on the recovery track” on the back of a sharp pick-up in gross fixed capital formation, but warned gathering headwinds including fiscal and current account challenges posed risks to the economic momentum.

“There has been an uptick in capacity utilisation with some industries such as steel closing the gap,” the RBI said in its Financial Stability Report released on Tuesday. “The aggregate demand composition indicates a broad-based growth with revival of investment.”

At the same time, the conditions that had resulted in fiscal consolidation, moderation in inflation and a benign current account, were changing, warranting caution, the RBI said.

Specifically, it warned that the progress achieved on fiscal consolidation could face challenges unless there was buoyancy in tax receipts and restraint on expenditure.

The widening current account deficit — the shortfall widened in 2017-18 on the back of a wider trade deficit — was also a challenge as it impacted exporters’ cost-effective access to U.S. dollar credit. While aggregate export credit increased moderately between March and December 2017, it was critical to ensure that public sector banks had continued access to global money markets as they contributed about 45% of the export credit.

External risks

“Enhanced supply of export credit from private sector banks, foreign banks and non-banking financial companies could offset the potential adverse impact on trade credit,” it noted.

Externally, tightening liquidity conditions in developed markets were impacting emerging market currencies, bonds and capital flows. “Firming commodity prices, evolving geopolitical developments and rising protectionist sentiments pose added risks,” it said.

RBI's Financial Stability Report ?


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