RBI on Friday warned that corporate investment activity was still muted to suggest a definitive rebound in the economy, and a lot will depend on the rise in rural incomes driven by normal monsoon.
“Growth has weakened with continuing sluggishness in industrial activity and services,” RBI said in its mid-quarter review.
“Consumption, while relatively firm so far, is starting to weaken even in rural areas, with durable goods consumption hit hard. Consequently, growth is trailing below potential and the output gap is widening,” it said.
Consumer goods— which have been the arrowhead in the demand surge over the previous decade that lofted India’s trend growth rate to close to 9% in the previous decade — remain a key area of concern.
Consumer durables output have shrank by 0.9% in July, mirroring deferred purchases of televisions and cars.
“Some pick-up is expected on account of the brightening prospects for agriculture due to kharif output and the upturn in exports,” RBI said.
It said pace of implementation of infrastructure projects is critical for the turnaround of the economy to spin jobs.
“Also, as infrastructure investments are expedited, and as projects cleared by the Cabinet Committee on Investment come on stream, growth could pick up in the second half of the year.
The pace of infrastructure project completion is subdued and new project starts remain muted,” it said.