The economy is growing, inflation is coming under control, under your leadership Reserve Bank of India has ensured that the financial stability remains strong and robust and forex reserves are strong. So, can I say that this is the best macro setup you have seen, at least in your tenure?
Shaktikanta Das: Yes, I would think so. It is the mix, the confluence of various factors are very robust. But having said that, I would like to also qualify it by saying that it should not lead us into any kind of complacency or overconfidence. Markets keep changing. International developments keep happening. There could be surprises. So, one has to be very alert and agile at all times and try to sort of see, watch the developments in every corner of our own economy and also what is happening all around because things can sort of turn, it takes very little time for the cycle to change. So, one needs to be very alert and agile, no room for complacency. But yes, at the same time, I think the current confluence of factors are strongly favourable to India’s growth.
Your FY24 estimates which Reserve Bank of India initially started with, the final number was much above than what your initial estimates were. So, for FY25 also, the initial start number is 7.5, 7.2 to be specific. Are you leaving a lot of headroom for a positive surprise?
Shaktikanta Das: There can be positive surprises, I do not rule it out. But I think, you see we give a number when we are totally convinced about it and our approach is not to sort of gamble by giving a higher number.
Our overall approach as a central bank is always very conservative in the sense that when we are absolutely sure about a particular number, we give it.
Now, we are certain about 7.2%, of course yes, there are downsides emanating from possible downside risks, not downsides, but downside risks emanating from geopolitical conflicts accentuating further or the trade and the capital flow fragmentations becoming more accentuated. So, there are downside risks emanating from the external sector. But within that, as I explained a little earlier, I think the momentum continues to be strong. So, we therefore thought that 7.2% is very much achievable. We expect it very much to materialise, although our internal now casting tells me a slightly higher number. But I am not saying that in public. I would rather wait for the number to come and then talk about it. When the Reserve Bank of India Governor is indicating something, he is thought through it and now I am just putting the dots here, which is then your earlier forecast, while you were describing the forecast, your choice of words was cautiously optimistic. The word cautiously optimistic is out, the word confidence has made a comeback.
Shaktikanta Das: Yes, I think we are getting used to a better forecasting scenario. And I hope it sustains, because again touchwood, whether in matters of inflation or growth forecast you would have seen in the last few years by and large the numbers are coming almost in line with our projections. So, our forecasting models, our overall methods we have brought about a lot of improvements so that seems to be working. And we are quite confident about this 7.2 for the current year.
Last couple of years, we have had a patchy monsoon and the economy has managed to grow despite a patchy monsoon. Looks like we are in for a normal monsoon this year. So, yes, assumptions of GDP growth, what kind of monsoon factor it is accounting in for?
Shaktikanta Das: No, if you see the monetary policy resolution, I do not know whether we mentioned, I think we did mention that we assume always a normal monsoon because monsoon, again the uncertainty always persists. Even this year also, after setting in a bit early for the last 15-20 days monsoon has slightly slowed down and currently there is extremely severe heat conditions prevailing in northern states. But the monsoon will revive according to the IMD. But for the projections, for our estimate of GDP growth, and in all respects in monetary policy, we have assumed a normal monsoon.
This is the first time we are speaking to you on a public forum, so probably from a regulator’s standpoint, the continuity of the government, what does that mean for a regulator?
You see, for us, it is the government. There is always a government, irrespective of which party forms the government, there is always a government. So, as a central bank, and for every citizen in the country, there is always a government. So, I will leave it at that.
Since we are talking about shots, let us look at the pitch report. Global conditions are stable. If one looks at the weather conditions, locally also are getting better. So, is the stage now getting ready for Reserve Bank of India to do the obvious, which is you have stated that you want to do the obvious, change the stance?
Shaktikanta Das: This is one point which we have explained quite a lot in the monetary policy statement. Now, you see, we are maintaining the growth inflation balance and in that growth inflation balance, the interest rates, the repo rate is 6.5%, and it seems to be working because growth continues to remain robust. But inflation is moderating very-very slowly. So, if you are expecting a faster moderation of inflation, then we have to take much more drastic measures.
In terms of stance, in terms of rate, we will have to take a much more drastic measure if we want inflation to be brought down. But then we have to also weigh what would be the growth sacrifice that we would be making for the economy.
In fact, if you recall, towards the end of 2021 and early 2022, there was all round clamour as to why the Reserve Bank is not increasing the rates.
Before March of 2022, there was a considerable body of opinion outside saying that the Reserve Bank was falling behind the curve. And that view seemed to be, seemed to be gaining traction. But we were very single-minded that we have taken the right decision and at that point of time towards the end of financial year 21-22, just in the four-five months preceding the Ukraine war, we wanted growth to revive.
We wanted clear evidence that the growth has revived. So, therefore, we refrained from increasing the rates or tightening the stance. Because our job is to ensure a proper, appropriate balancing between growth and inflation.
At this point of time, there is again a clamour that one should change the stance. But we want clear evidence that inflation should moderate. And moderate, we need more evidence that inflation should moderate and perhaps a little faster.
As I explained, core inflation has come down. But the biggest uncertainty is food inflation. The average food inflation has been 8% in the last six to seven months and that is slowing down the disinflation of the headline numbers.
Headline still remains at 4.75 as per the latest number and then in the second quarter, it is likely to go down to 3.8. But again, it will go up to 4.5, 4.6. So, you are within striking distance of 5%. And if there are a series of weather events or something goes wrong on the weather front, the vegetable prices and other prices of the key vegetables, the prices may go up. The food inflation again may go up.
International food prices, I talked about international metal prices going up. In fact, the global food price index has also started going up. So, therefore, it could even touch 5%. So, therefore, it will be too premature to talk in terms of changing the stance. I think I used the word saying that any form of adventurism should be shunned. At this point of time, we should avoid any form of adventurism. It is better to stay the course and be watchful and take the step as play ball by ball.
So, in your terminology, the inflation elephant has gone for a walk. It is too early to assume that it has gone in hibernation.
Shaktikanta Das: You see, the elephant is definitely going towards the forest. No doubt on that. But it is taking its own time. So, we have to be cautious and watchful.
The dividend from RBI, two lakh crore, is it in sync with Reserve Bank of India’s balance sheet, which is getting expanded?
Shaktikanta Das: The balance sheet size obviously is growing by about 10% or so annually. But this year, you look at the annual accounts, they have been already published. It is there in our annual report, the annual statement of accounts have already been published.
And it is mainly our incomes from foreign assets have gone up. Significantly, the income from foreign assets have gone up that is mainly decided by the fact that all the advanced countries or all the countries where we have deployed our forex reserves by investing in their securities and government securities and treasury bills, the interest rates have gone up there.
We rotate our investments also quite frequently. So, naturally, the income from foreign assets have gone up significantly. And it is determined, it is just an arithmetical number that we have to arrive at following the principles laid down by the Committee on Economic Capital Framework, the committee, the Bimal Jalan Committee. According to that recommendation, it is mainly out of, I would say, the foreign assets income.
