The Reserve Bank of India (RBI) governor Urjit Patel said there are visible signs of an upturn and economic growth is likely to exceed 7% in the last two quarters of the year as projected in last week’s Monetary Policy Report.
“We have started seeing the upturn. The Nikkei India Services PMI Business Activity Index rose more than three percentage points in September over August; the core sector IIP (index of industrial production) saw a 4.9% rise in August. If you look at some of the high-frequency data such as automobile and two-wheeler sales, you also see the upturn there,” Patel said.
He also said the real interest rate is significant but since it is inherently time varying there cannot be a rigid target for this and a range is more helpful.
“What is important is that in a capital-scarce country like India, the real interest rate needs to be positive enough to encourage healthy growth of financial savings; we get into macro difficulties when real rates on financial savings become negative for a length of time,” he added.