Remonetisation, GST to boost growth to 7.4% in 2017-18: RBI
The rapid pace of new currency notes coming into the hands of Indians along with the beneficial impacts of several reforms such as rollout of Goods and Services Tax will help the economic growth to rebound in 2017-18, the Reserve Bank of India said on Thursday.
Keeping the policy lending rate--repo--unchanged at its policy review, RBI forecast economic growth measured in terms of gross value addition (GVA) to 7.4% for 2017-18 from 6.7% last year.
India’s stats office CSO has estimated gross domestic product growth to slide to 7.1%
“Several favourable domestic factors are expected to drive this acceleration. First, the pace of remonetisation will continue to trigger a rebound in discretionary consumer spending,” RBI said in its policy statement.
While the November decision to weed out Rs 500 and Rs 1,000 notes hit economic activity, RBI said “activity in cash-intensive retail trade, hotels and restaurants, transportation and unorganised segments has largely been restored.”
Second, banks have passed on the benefit of past RBI rate cuts to consumers by lowering their respective lending rates after the demonetisation drive.
Third, various proposals in the Union Budget should stimulate capital expenditure, rural demand, and social and physical infrastructure, all of which would invigorate economic activity, the RBI said.
“The imminent materialisation of structural reforms in the form of the roll-out of the GST, the institution of the Insolvency and Bankruptcy Code, and the abolition of the Foreign Investment
Promotion Board will boost investor confidence and bring in efficiency gains,” it added.
Fifth, the RBI said an upsurge in initial public offerings in the primary capital market augurs well for investment and growth.
Also, the overall global environment is improving, with global output and trade projected by multilateral agencies to gather momentum in 2017. “Accordingly, external demand should support domestic growth,” RBI added.
Growth could be hit if the monsoon rains fall short of average and commodity prices firm up.
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