RBI Governor Shaktikanta Das on Friday said that since monetary policy has its limitations, structural and fiscal reforms are needed to boost growth. It comes days after the first advance estimate of the GDP estimated the economy to grow at 48-year-low of 7.5 per cent and real growth at an 11-year low of 5 per cent. “Monetary policy has its own limits. Structural reforms and fiscal measures may have to be continued and further activated to provide a durable push to demand and boost growth,” Das said at an event.
There are areas where structural reforms are required if done properly, Shaktikanta Das also said. These can act as possible growth boosters and through backward and forward linkages can give a significant push to growth. “One of the major challenges for central banks is the assessment of the current economic situation. The precise estimation of key parameters such as potential output and output gaps on a real time basis is a challenging task, although they are crucial for the conduct of monetary policy,” he added.
IMF recently slashed the growth estimates for both Indian and the global economy. The global growth is expected to reach 3.3 per cent in 2020, compared to 2.9 per cent in 2019, the slowest pace since the financial crisis a decade ago. The Washington-based international crisis lender revised downward India’s GDP growth projection to 4.8 percent for FY20 and to 5.8 percent for FY21. “(India’s) domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth,” the IMF report said. Even the RBI cut its GDP forecast for FY20 by a whopping 290 bps to a low 5 per cent between February and December.
“The shifting trend growth in several economies, global spillover effects and disconnect between the financial cycles and business cycles in the face of supply shocks broadly explain why monetary policy around the world is in a state of flux,” Das said in the speech entitled the ‘Seven ages of India’s monetary policy,’ he noted.