Shashanka Bhide, one of the three external members of the Monetary Policy Committee (MPC), on Thursday flagged a weak consumption demand as a key vulnerability for growth in the second half of the current fiscal as well as the next financial year.
After more-than-expected Q2 growth which printed at 7.6 per cent on the back of a 7.8 per cent clip in Q2, the Reserve Bank in the December policy review revised upwards the FY24 growth projection by 50 bps to 7 per cent.
While the government does not have an official GDP forecast number, it expects the economy to grow at 6.5-7 per cent this fiscal.
"The September quarter growth at 7.6 per cent was significantly more than what we were expecting. But these numbers, even when they are more positive or favourable, require far more concern.
"I believe there are vulnerabilities to this 7 per cent growth assessment. The few major growth drivers include investments that are driving growth, but we see weaker growth in consumption demand," Bhide said at an economic conclave organized by SBI here.
He went onto buttress his growth concerns to the falling global growth as well "we also obviously do not see external demand being the major driver of the economy. On the supply side, we've had weak monsoons this year and this has certain implications to agricultural growth and rural demand. Then there is also the issue of great global uncertainties."
He further noted that all growth engines of the economy are also not firing from all cylinders now, leading some to wonder whether those drivers that are doing well alone can sustain higher growth? It can be noted that the country's exports dipped 2.83 per cent to USD 33.9 billion in November and the narrowing trade deficit at USD 20.58 billion, as imports fell 4.33 per cent to USD 54.48 billion.
Cumulatively, exports in April-November contracted by 6.51 per cent to USD 278.8 billion, while imports slipped 8.67 per cent to USD 445.15 billion due to a fall in oil imports which dipped to USD 113.65 billion from USD 139.29 billion on-year.
On the lingering conflict in the Middle East, he said these conflicts have the potential to affect supply-chains globally. We also somewhat slow recoveries in some large economies, especially China. So there are issues that are important while looking at the growth dynamics today, he said.
On inflation, which the RBI-led MPC has been fighting since May 2022, leading it to increase the policy rates to a near record high of 6.5 per cent by increasing the rates by 250 bps, he said as "we've declining core inflation now we are more concerned about food inflation at this point".
He also suspected the quality of credit growth which has been growing in high double-digits this fiscal so far, he said though the rising credit is another indicator of growth, but "what we need to see is that is this growth of credit an indicator of investment intentions or is it an indication of lack of adequate income to finance whatever investments have been made?," he questioned.