Rates in India
An Independent body, The
Reserve Bank of India uses the monetary policy in India to management
macroeconomic factors, growth and price stability.
The Reserve Bank of India, the
country’s central bank, did not change its benchmark interest rate of 6% on
December 6th,2017, maintaining its ‘neutral policy stance’. The
commercial banks continue to charge a savings interest rate in the range of 4%
With this repo rate, the RBI is trying to control the increase in price
pressure as oil prices continue to rise, increase in housing rent allowances, continuous
rise in core inflation and increase in economic growth. Even though the Indian
Industry presses for rate cut, the RBI is on a mission of ‘Inflation targeting’
under the new government as there is a continuous rise on oil prices and an
unwanted impact on exchange rate.
Fiscal Policy and Economic
GDP growth is projected to strengthen to above 7% in 2018 with the economy
recovering from the adverse effect of rolling out of Goods and Service Tax(GST)
and demonetization with benefits of structural reforms yet to be reaped.
Private consumption has also increased post the liquidity crunch of demonetization,
however, investment is low because of weak financial position of banks. GST, with
its promise to unify India’s vast domestic market along with the rise in various
allowances from government and loan waivers will boost growth. In the medium
term, growth is expected to rise above 8%, primarily owing to structural
reforms to digitize the economy and curb black economy practices. This along
with the Insolvency and bankruptcy code are aimed to formalize the economy.
Inflation seems to be a bigger
concern than growth in the medium term. Inflation rate in India closed at a
high of 5.10% by the end of 2017 and is expected to average at 5.7% in 2018 and
fall to 4.8% by 2020. An increase in food prices, especially vegetables and
government allowances are maintaining inflationary pressures now, in addition to
RBI is targeting an inflation rate of 4% with a tolerance band of plus minus 2%.
The inflation is expected to be between 4.3-4.7% in the second half of
2017-2018 fiscal year.
In summary, the
GDP of India is expected to reach US$ 6 trillion by FY27 and with favourable
demographic dividend, digitalization and structural reforms to curb corruption
and boost investment and inclusive growth.
India is also
focusing on renewable sources to generate energy. India is expected to be the
third largest consumer economy as its consumption may triple to US$ 4 trillion
by 2025, owing to shift in consumer behaviour and expenditure pattern,
according to a Boston Consulting Group (BCG) report; and is estimated to
surpass USA to become the second largest economy in terms of purchasing power
parity (PPP) by the year 2040, according to a report by PricewaterhouseCoopers.