RBI governor Raghuram Rajan kept the key policy rates unchanged but reiterated the accommodative stance of the RBI which, he said, would be dependent on the Union Budget’s fiscal policy stance. He put the onus on the government to carry out structural reforms that would boost growth while controlling spending so that would create more space for monetary policy to support growth while ensuring that inflation remains on the projected path of five per cent by the end of 2016-17. There is hope that once there is clarity on reforms and the impact of the 7th Central Pay Commission award — which is likely to cause an upward momentum in inflation for at least one or two years — the RBI could cut interest rates by at least 25 basis points, if not more, to spur growth.
Meanwhile he said the RBI would give all the support needed for the government’s Startup India initiatives, like facilitating foreign direct investment as start-ups need funds in various forms, and relaxing and simplifying compliance regulations to facilitate ease of doing business. The governor recognised the slowdown in industrial activity in the last two to three months but said its industrial outlook survey suggests a modest expansion in activity in the fourth quarter of this fiscal. He has kept the growth rate for 2015-16 unchanged at 7.4 per cent and 7.6 per cent for 2016-17 despite significant headwinds, like weak domestic private investment, huge number of stalled projects, excess capacity in industry and sluggish external demand. He hoped the government would rekindle the underlying growth drivers to place the economy durably on a higher growth path.
