{"id":162827,"date":"2024-10-28T03:36:15","date_gmt":"2024-10-28T03:36:15","guid":{"rendered":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/10\/28\/rbis-rosy-growth-forecast-baffles-economists-times-of-india\/"},"modified":"2024-10-28T03:36:15","modified_gmt":"2024-10-28T03:36:15","slug":"rbis-rosy-growth-forecast-baffles-economists-times-of-india","status":"publish","type":"post","link":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/10\/28\/rbis-rosy-growth-forecast-baffles-economists-times-of-india\/","title":{"rendered":"RBI\u2019s rosy growth forecast baffles economists – Times of India"},"content":{"rendered":"
\"RBI\u2019s<\/div>


\n<\/p>\n

\n
\n
\n
\n
\n
\n
<\/div>\n<\/div>\n<\/div>\n
RBI governor Shaktikanta Das said earlier this month an interest rate cut at this stage would be \u201cvery, very risky\u201d.<\/span><\/div>\n<\/section>\n<\/div><\/div>\n

The Reserve Bank of India<\/a>\u2019s upbeat growth estimates for the world\u2019s fastest-growing major economy is causing both confusion and concern among economists.
The central bank has stuck to its forecast that India\u2019s economy will expand 7.2% in the year ending March 2025 despite recent evidence showing activity is starting to taper off. The RBI<\/a>\u2019s outlook is far more optimistic than the 6.5%-7% growth projected by Prime Minister Narendra Modi\u2019s government. Investment banks like Goldman Sachs Corp have already downgraded growth projections to as low as 6.5%.
The RBI\u2019s 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\u2019t heeded in time, the RBI runs the risk of keeping monetary policy too tight, undermining growth further, they say.
\u201cThe RBI\u2019s forecast is higher than what a margin error around market forecast would allow,\u201d said Dhiraj Nim, an economist at Australia & New Zealand Banking Corp. \u201cI don\u2019t think the overall macro mix has evolved very encouragingly in the last couple of months\u201d to support the central bank\u2019s predictions, he said.
From sales of cars and coffee to manufacturing, there has been a downturn in several sections of the economy. India\u2019s 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 out of the four months since June.
The lingering spell of weak demand for consumer goods in cities has hurt profits of some of the biggest companies in the country, like Hindustan Unilever Ltd, which makes everything from soap to tea. \u201cThe pattern is quite clear that urban growth has trended down in recent quarters,\u201d Rohit Jawa, the company\u2019s chief executive officer, said in an earnings call on Wednesday.
Muted economic activity comes at a time when the RBI has kept its key interest rate unchanged for almost two years. Governor Shaktikanta Das said earlier this month an interest rate cut at this stage would be \u201cvery, very risky\u201d and he\u2019s in no hurry to join the wave of easing by global policymakers. He reiterated on Friday that he wants to see inflation on a \u201cdurable descent\u201d to the 4% target.
\u201cThere\u2019s a risk of a policy misstep if you keep rates higher for longer,\u201d said Teresa John, an economist with Nirmal Bang Institutional Equities, projecting a 6.6% expansion for the year. Monetary policy works with a lag, so the more time the RBI takes to cut rates, the greater time it will take to spread through the economy, she said.
Festival season sales<\/span>
While the RBI expects a revival in demand in the ongoing festival season, economists said that may not be enough to sustain long-term growth. The three-month long festive period, which culminates with the Hindu-festival of Diwali this week, typically makes up 20%-30% of the annual sales for various companies.
\u201cThere is hope that this Diwali will be lit, but the light might not last several quarters,\u201d said Achala Jethmalani, an economist at RBL Bank Ltd. \u201cEven if there is a jump in consumption during the festive season, it is expected to be seasonal and the momentum could possibly fade\u201d in later months, she said.
Even though momentum is picking up in rural markets after above-normal monsoons and a bumper crop, it\u2019s still not enough to make up for the bleakness in cities, where consumers spend much more.
\u201cRural is recovering from where it was,\u201d Sunil D\u2019Souza, managing director of Tata Consumers Products Ltd, told investors after the company\u2019s earnings. \u201cBut it is still not at the stage where it gives us a double-digit volume growth.\u201d<\/div>\n