Monetary policy review: RBI should stick to its price stability mandate
Subscribe to enjoy similar stories. One of the lingering effects of covid—‘long covid’—is that economic growth has begun to look a bit like the Sensex, albeit in slow motion. So if GDP growth in the second quarter of 2024-25 surprised on the downside at 5.4%, the lowest in the last seven quarters, 2023-24 was a different story altogether, with second-quarter growth clocking 8.1%.
That’s the kind of see-saw usually associated with stock markets, not macro numbers like GDP. While the drivers may differ each year, underlying these swings is the ‘base effect,’ a consequence of making comparisons with a ‘base’ year, usually the previous one. So, last fiscal year’s growth looked rosy in large part because growth in 2022-23 had flagged since 2021-22, when it was 9.7% but on a covid-shrunken GDP base of 2020-21.
The same effect will make this fiscal year’s expansion look relatively weak. This is not to underplay the economy’s deceleration in the last quarter. High-frequency data had hinted at a moderation in economic activity well before the numbers came in last Friday, just as these indicators now hint of a revival of sorts in the second half of 2024-25.
But what took most observers by surprise was the extent of the slowdown. A related issue is whether this is a transient slump that policymakers—fiscal and monetary—can look through or is it part of a larger cyclical slowdown. If it is the former, there would be no need for any policy action; a knee-jerk reaction might boomerang, creating more problems later.
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