Recently the Reserve Bank of India (RBI) Governor Shaktikanta Das said that the Indian economy is likely to grow more than the National Statistical Office (NSO) estimate of 7.6 percent in the present financial year (FY24) and it could be close to 8 percent.
The NSO in its second estimate pegged economic growth at 7.6 percent for FY24.
Our sense and understanding of the high-frequency indicators and the momentum of economic activity tell us that this 5.9 percent growth in Q4 could be exceeded and when that takes place the growth will be more than 7.6 percent. There is a high chance of the gross domestic product (GDP) number for the present year being very close to 8 percent, says Das.
On the matter of Paytm Payments Bank which has been asked to stop deposit and credit transactions after March 15, Das said the regulatory action was against the payment bank, a regulated entity, and not against any fintech.
He said the March 15 deadline would be enough and not cause any issues since only 15-20 percent of Paytm app users have connected their account to the payments bank.
So far as Paytm is concerned, a large part of its payments app users, nearly to the extent of about 80 to 85 percent, are connected to other banks along with Paytm bank or to completely different banks. So, therefore, about 80 to 85 percent of the customers who are using the app will not be affected at all because their app is also connected to another bank account of theirs, says Das.
So, their payments can go on in a non-disruptive manner. The challenge is about 15 or 20 percent of the users have connected only with Paytm Payments Bank. Therefore, Paytm Payments Bank has been asked to shift these customers to other banks, says Das, stressing that the RBI favors innovation in the financial technology sector and has even introduced Sandbox for testing new tools.
Regarding GDP growth for FY25, Das stuck to the estimates provided during the February monetary policy review which was 7 percent.
We are quite positive about next year. And I say, with a certain amount of confidence based on our internal analysis and research, that 7 percent next year is very much on the table, says Das.
While adding that the economic growth momentum has been strong, Das said rural demand has improved compared to last year and urban demand continues to be very strong. Also, the investment activity continues to be strong on the back of government capex, and private capex is also starting to improve.There are signs of private capex revival, mostly in certain sectors like steel, construction activity, textiles, and chemicals.
The governor said that the savings rate in the country would improve as economic growth strengthens.
Presently, the credit growth in the economy is about 16 to 17 percent and deposit growth is around 12 to 13 percent. Meanwhile, the historical growth trends in deposits are around 13 to 14 percent.
To some extent, I think there has been some dip in deposits, perhaps because I think now there is a tendency to spend more. I think individual consumption expenditure is picking up. But finally, that money comes back into somebody else’s bank account. So, as economic growth takes a greater foothold, I think one can anticipate the savings rate to improve.
Talking about inflation and maintaining the stance, the governor said the RBI was trying to bring inflation sustainably and durably to 4 percent.
It cannot be just a one-off number or just a one-month number touching 4 percent, which will give us satisfaction. It has to be sort of sustainably and durably at around 4 percent and that is something that will give us confidence.
However, the central bank continues to be careful with its monetary policy stance due to two major uncertainties emanating from geopolitical risks resulting in supply chain challenges and weather-related events that affect food prices.
In January, the inflation print was 5.1 percent, 110 basis points higher than RBI’s target. The RBI’s estimation of Consumer Price Index inflation for FY25 is 4.5 percent.
