RBI's rosy growth forecast baffles economists
Reserve Bank of India’s upbeat growth estimates for the world’s fastest-growing major economy is causing both confusion and concern among economists.
The central bank has stuck to its forecast that India’s economy will expand 7.2% in the year ending March 2025 despite recent evidence showing activity is starting to taper off. The RBI’s outlook is far more optimistic than the 6.5%-7% growth projected by Prime Minister Narendra Modi’s government. Investment banks like Goldman Sachs Corp. have already downgraded growth projections to as low as 6.5%.
The RBI’s bullishness is underpinned by its view that rural spending is improving and private investment is picking up. Economists, though, point to sluggish urban consumption and weakening exports as a worry. If those warning signals aren’t heeded in time, the RBI runs the risk of keeping monetary policy too tight, undermining growth further, they say.
“The RBI’s forecast is higher than what a margin error around market forecast would allow,” said Dhiraj Nim, an economist at Australia & New Zealand Banking Corp. “I don’t think the overall macro mix has evolved very encouragingly in the last couple of months” to support the central bank’s predictions, he said.
From sales of cars and coffee to manufacturing, there has been a downturn in several sections of the economy. India’s factory activity had been softening since July, although it registered an uptick this month. Passenger vehicle sales fell for two months in a row in September, while air travel has declined three
