Bad corporate loans, slow factory output, farm loan waivers and disruption of supply chain due to GST could disrupt India’s growth.
Mumbai: With the Reserve Bank of India (RBI) making a 25 bps policy rate cut on Wednesday, the game is once again in the government’s court to deliver economic growth.
After the sixth meet of its Monetary Policy Committee, the RBI urged the government to "speed up private investments" to bolster economic growth through policy reforms.
Speaking to Bloomberg, Sujan Hajra, chief economist at Anand Rathi Financial Services Ltd, said “Monetary policy can do only so much for the economy. The bigger chunk of providing stimulus lies with the government".
Although India’s economy is projected to grow at a pace of over 7 per cent, leaving even the mighty Chinese economy behind, a stockpile of bad corporate loans, slow growth of factory output, farm loan waivers and disruption of supply chain due to GST could disrupt India’s pace.
According to a report by Bloomberg, “His (Modi’s) government has limited room to increase spending because it runs a bloated deficit, and scope for monetary easing may close when the Federal Reserve starts reducing its balance sheet”.
This implies that the Prime Minister needs to take leverage of his party’s presence in 18 of 29 states to make land reforms, acquire land, bring in companies and also aid labour reforms.
According to the data released by RBI on Wednesday, factories have been delivering about 74 percent of capacity in October-December, business performance has worsened in April-June quarter and more households expect price hikes over the next three months.
“While the outlook for agriculture appears robust, underlying growth impulses in industry and services are weakening, given corporate deleveraging and the retrenchment of investment demand," RBI said in its statement.
Moreover, the union budget has also been running a deficit at 81 percent of the full-year target in the first six months, reported Bloomberg.
With such critical issues entrenched in the Indian economy at this point, RBI’s rate-cut is only a start, while the real onus of economic growth is on the government.