Weak domestic and demand conditions led the Reserve Bank of India on Wednesday to cut its economic forecast to 6.9 per cent for 2019-20.
The RBI’s monetary policy committee (MPC) in its third policy review of the current fiscal reduced the growth rate to 6.9 per cent from 7 per cent in FY2019-20.
In the June resolution, MPC had projected the real GDP growth for 2019-20 at 7 per cent — in the range of 6.4-6.7 per cent for H1:2019-20 and 7.2-7.5 per cent for H2 — with risks evenly balanced.
Besides, the GDP growth for the first quarter of FY2020-21 is projected at 7.4 per cent.
“Various high frequency indicators suggest weakening of both domestic and external demand conditions,” the MPC said in a statement.
“The ‘Business Expectations Index of the Reserve Bank’s industrial outlook survey’ shows muted expansion in demand conditions in Q2, although a decline in input costs augurs well for growth.”
However, MPC said that the impact of monetary policy easing since February 2019 is also expected to support economic activity, going forward.
“Moreover, base effects will turn favourable in H2:2019-20. Taking into consideration the above factors, real GDP growth for 2019-20 is revised downwards from 7 per cent in the June policy to 6.9 per cent — in the range of 5.8-6.6 per cent for H1:2019-20 and 7.3-7.5 per cent for H2 – with risks somewhat tilted to the downside…,” the statement said.