RBI Governor pushes for growth-backed policies as global uncertainty clouds India's investment outlook: MPC minutes

Economic Times

5 hours ago

RBI Governor Sanjay Malhotra cautioned that rising global uncertainty could postpone business investment decisions. He noted that post-COVID recovery has been driven by public investments, with private sector investment remaining weak despite favorable conditions. Malhotra emphasized the necessity of implementing policies that actively support economic growth in the face of these challenges.
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Growth and inflation outlook
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Rising global uncertainty may cause businesses to delay investment decisions, Reserve Bank of India Governor Sanjay Malhotra said, stressing the need for policies that support economic growth , in his statement, released on Friday, as a part of the minutes of the Monetary Policy Committee (MPC) meeting.'On the investment front, the post-Covid recovery so far has been largely led by public investments, while private sector investments have been weak despite high capacity utilisation and improved corporate balance sheets. Moreover, heightened global uncertainties may put on hold investment decisions by businesses, underscoring the need for growth supportive policies,' Malhotra stated.In its June meeting, the MPC decided to cut the benchmark repo rate by 50 basis points to 5.5%. The committee expects that this dual-rate cut will significantly reduce lending rates, thereby, encouraging both investment and consumption, particularly in durable goods.Backing the decision, Malhotra said, 'It is expected that the front-loaded rate action along with certainty on the liquidity front would send a clear signal to the economic agents, thereby supporting consumption and investment through lower cost of borrowing.'The RBI had earlier indicated that investment activity is likely to improve, supported by higher capacity utilisation, better corporate balance sheets across both financial and non-financial sectors, and continued capital expenditure by the government.However, the overall investment landscape remains uneven. 'Domestically, the recovery of economic growth to 7.4% in Q4:2025 from 6.4% in Q3:2025 was a pleasant surprise. It helped to close the year 2024-25 with 6.5% growth overall. However, the recovery has not been broad-based. It was supported by the rural consumption and government capex. Private investment, especially in manufacturing, and urban consumption, have continued to remain subdued,' said MPC member Nagesh Kumar in his statement.He added, 'It is not clear that the growth momentum will continue in the Q1 of the current year, given the fact that consumption and investment growth is moderating. The survey of corporate performance shows that companies are deleveraging their balance sheets with rising profits. Despite the capacity utilisation crossing beyond 75%, the investment intentions in manufacturing have moderated in 2025-26. The difficult external environment is likely to further complicate the economic growth outlook for 2025-26, especially for the manufacturing sector outlook, with implications for job creation. It calls for supporting growth through both fiscal and monetary policy.'Despite the concerns around external volatility, the RBI's rate-setting panel in its June MPC meeting retained its GDP growth forecast for FY26 at 6.5%, with quarterly estimates holding steady.India's economy grew at 7.4% in the March quarter, marking the fastest pace in the past four quarters. However, the full-year FY25 growth settled at 6.5%, slightly below the average of recent years. Governor Malhotra had acknowledged persistent external challenges such as geopolitical conflicts and changing trade policies, but remained confident in the domestic economic momentum, supported by a strong monsoon forecast and continued strength in the services sector.The central bank maintained its quarterly growth projections for FY26 at 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. 'Services sector is expected to maintain its momentum. However, spillovers emanating from protracted geopolitical tensions, and global trade and weather-related uncertainties pose downside risks to growth,' the MPC had noted.Malhotra added that the Indian economy is progressing well and largely in line with expectations, despite the headwinds from the global environment.On the inflation front, the RBI had revised its forecast downward for FY26 to 3.7%, from the earlier projection of 4% made in April. The downward revision came amid a sustained drop in price pressures.Malhotra had highlighted that headline inflation fell to a nearly six-year low in April, driven by easing food prices and deflation in fuel. Core inflation remained stable despite global commodity market volatility.The RBI's latest quarter-wise inflation projections were 2.9% for Q1, 3.4% in Q2, 3.5% in Q3, and 4.4% in Q4. The central bank had stated that risks to the inflation outlook were 'evenly balanced.'With inflation easing and the economy showing selective strength, the RBI and the MPC have chosen to support momentum while remaining cautious of evolving global dynamics.