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Informist, Monday, Dec. 23, 2024

 

--MPC's Nagesh Kumar: Jul-Sept growth slowdown "serious"

--CONTEXT: Remarks by MPC external member Nagesh Kumar in an interview

--MPC's Kumar: Cutting repo rate could help revive pvt invest, consumption

--MPC's Kumar: Expanding mfg sector could help contain inflation pressures

--MPC's Kumar:Rate cut will aid growth without worsening inflation situation

--MPC Kumar: Must guard against risks of currency appreciation in real terms

 

By Siddharth Upasani

 

NEW DELHI – The slowdown in growth experienced by the Indian economy in Jul-Sept is "serious" and lower borrowing costs could be crucial in boosting private investment as well as consumption, according to Nagesh Kumar, one of the three external members on the Reserve Bank of India's Monetary Policy Committee.

 

"I believe that the growth slowdown in Q2 of 2024-25 to just 5.4% from 6.7% was serious because it largely reflected the slowdown of the manufacturing sector... The deceleration of manufacturing growth from 7.0% to just 2.2% was rather sharp," Kumar told Informist in an e-mail interview following the release of the minutes of the MPC's Dec. 4-6 meeting on Friday.

 

"A reduction of the cost of capital through a reduced repo rate could help to revive the growth of private investment besides consumer demand," he added.

 

Kumar, director and chief executive of the New Delhi-based Institute for Studies in Industrial Development, was one of two members of the rate-setting panel to vote for a 25-basis-point reduction in the repo rate earlier this month. While he was again in the minority--he was the sole MPC member to call for a rate cut in October--the tide seems to be shifting even in the face of elevated inflation.

 

According to Kumar, "expanding the manufacturing sector could also help in containing inflationary pressures by enhancing the supply capacity". Data released after the MPC's decision on Dec. 6 to leave the repo rate unchanged at 6.50% for the 11th meeting in a row showed CPI inflation in November eased to 5.48% from October's 14-month high of 6.21%. Kumar expects the disinflation to continue in the coming months as food prices cool further.

 

"Therefore, I believe that a rate cut would help in reviving economic growth without worsening the inflationary situation, which may soften with seasonal correction in prices," he said.

 

The RBI has forecast CPI inflation to average 5.7% in the last quarter of 2024, before moderating to 4.5% in the first quarter of 2025. While some economists see the MPC lowering interest rates in February, the huge change in the committee's constitution has added to some uncertainty, although the end of Shaktikanta Das' tenure as governor of the RBI has generally been perceived as making the committee more dovish. Deputy Governor Michael Patra's term also ends before the MPC meets next in early February, making the appointment of his replacement a key decision for the government.

 

As per Kumar, the next meeting during Feb. 5-7 "will take stock of how the inflation-growth balance was shaping up between now and then against the backdrop of global trends". He again warned that most central banks around the world have begun to normalise their monetary policies in recent months and that while the MPC does not have to "follow what other central banks do", India runs the risk of the rupee appreciating if it delays action.

 

"India needs to guard against the risks of currency appreciation in real terms as it would hurt the competitiveness of Indian products," he said.  End

 

Edited by Avishek Dutta

 

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