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Informist, Monday, Feb. 24, 2025

 

--MPC's Kumar:Tough global econ environment doesn't bode well for mfg sector

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

--MPC's Kumar: Threat of major trade wars doesn't bode well for mfg sector

--MPC Kumar:Future action would depend on evolving growth-inflation dynamics
 

By Siddharth Upasani

 

NEW DELHI – The decision to cut the repo rate earlier this month by 25 basis points was because of the need to support growth at a time when uncertainty with regard to global trade policies could potentially hurt the Indian manufacturing industry, according to Nagesh Kumar, one of the three external members on the Reserve Bank of India's Monetary Policy Committee.

 

"In particular there was concern about weaknesses of the manufacturing sector, as it is important for job creation, due to subdued urban consumption and slow growth of private investments. The challenging global economic environment with threat of major trade wars erupting also does not bode well for the manufacturing sector," Kumar told Informist in an e-mailed interview following the release of the minutes of the Feb. 5-7 meeting of the committee.

 

In his statement in the minutes, released Friday, Kumar even suggested the Monetary Policy Committee could be "more ambitious and target a 50 basis point (rate) cut" as it would signal that Indian policymakers are "serious and would do whatever it takes to revive economic growth momentum". Other committee members also expressed the need to give growth higher weight in the monetary policy setting after GDP growth crashed to a seven-quarter low of 5.4% in Jul-Sept, while the first advance estimate pegged the full-year growth at a four-year low of 6.4% compared to the RBI's forecast of 7.2% in October.

 

"This means an 80 basis points downgrading in a matter of four months," Kumar said.

 

To be sure, a lower policy rate is only one factor that will help in reviving growth, with Kumar pointing out the roles that must be played by public investment, tax rates that determine disposable incomes, external factors that have a bearing on export demand for Indian goods, and liquidity management, among others. As for more rate cuts--markets broadly expect the repo rate to be lowered by another 50 bps in the coming months--Kumar said the future is data dependent.

 

"One will have to wait and see how the growth-inflation dynamics evolve between now and the April policy. The same applies to liquidity management measures such as CRR (Cash Reserve Ratio)," Kumar, director and chief executive of the New Delhi-based Institute for Studies in Industrial Development, said.

 

On the price front, the outlook seemed brighter, with inflation easing to 5.22% in December ahead of the February meeting of the Monetary Policy Committee giving rate-setters "elbow room" to lower interest rates. Since then, CPI inflation has dropped even further, with data released on Feb. 12 showing headline inflation falling to a five-month low of 4.31% in January.

 

"The future action would depend on the evolving growth-inflation dynamics. There are possibilities of global commodity prices are softening due to several factors. The crude oil prices are likely to head downwards due to the Chinese slowdown, the recently announced ceasefire in the Middle East with the prospects (of resolution) of the Ukraine conflict also brightening with the Trump 2.0 Presidency, which is also likely to enhance the US output of oil, and the growing dependence on renewables," Kumar said.  End

 

Edited by Tanima Banerjee

 

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