Indian economy exposed to risks as private consumption declines: RBI Report
Mumbai:The Reserve Bank of India in its Oct 2019 Monetary Policy report has said that the sagging private consumption poses risks to the Indian economy in future.
The Central bank said the economic activity in the country has slowed due to the domestic and global headwinds.
"A combination of domestic and global headwinds has depressed economic activity, especially in terms of aggregate demand. The near-term outlook of the Indian economy is fraught with several risks," the report stated.
The large employment generating sectors like automobile and real estate have continued to under-perform, the report stated and added that private consumption dropped owing to a host of factors, and loss of jobs is one of them.
"First, private consumption, which all along supported economic activity, is now beginning to slow down due to a host of factors. In this context, the performance of large employment generating sectors such as automobile and real estate remains less than satisfactory," the report pointed out.
The RBI in its report said the corporate tax rate cuts, infrastructure investment funds, stressed assets funds for the housing sector, implementation of a fully electronic GST refund system and funds for export guarantee would be of help.
The report maintained that the recent recapitalization of public sector banks has raised hopes that the credit flow of banks will increase, which is necessary for boosting private investment activities.
New capacities are not being added in the private corporate sector even as the existing capacities have been performing for several quarters close to long term average, the report said.
"The recent measures should help kickstart the capex cycle so that new capacities can come on stream and lead to the strengthening of domestic demand in the short-term while boosting the medium-term growth potential of the economy," it stated.
The report mentioned that the slowdown in the industrial sector deepened in the first quarter of FY2019-20, after beginning the downward slide in the second quarter of FY2018-19.
"A sharp deceleration in manufacturing GVA (Gross Valued Added) in Q1, 2019-20 essentially reflected weaknesses in the organised sector. In terms of the index of industrial production (IIP), however, the performance of manufacturing improved in Q1, 2019-20 from the previous quarter. In July, manufacturing output accelerated further," the report added.
Earlier, the Reserve Bank had revised the GDP growth rate estimates for FY2019-20 to 6.1% from 6.9%.
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