Mumbai: The government will have to do its part to help a faster recovery and start spending sooner, Axis Bank chief economist Saugata Bhattacharya said Thursday, estimating GDP growth for fiscal 22 between 9.5 and 10%. The Reserve Bank, which was the first to act with rate cuts and liquidity enhancement measures, has now run its course and will play a limited role in the recovery by ensuring stable financial conditions, Bhattacharya told the journalists on the eve of the central bank’s decision. monthly policy review.
He said private consumption has fallen and basic consumer spending has also been affected. There is a need to revive it by increasing government spending, especially on the capital spending he listed, he said.
The government may wait until the blockages are over before it can announce specific stimulus measures, which may have the best multiplier effect. “I hope they will pass soon,” he added.
Bhattacharya said he believes consumption will be affected at least until the December quarter and that the demand blow will continue even after the lockdowns are lifted.
He said the RBI is very likely to revise its GDP growth estimate downwards by 10.5% for FY22, which would look more like an acknowledgment of the setbacks experienced in the current June quarter. He expects the RBI’s new estimate to be over 10 percent real GDP growth.
The bank’s internal view is that the growth will be between 9 and 10.5%, Bhattacharya said, adding that there is a 60-65% chance that it will be between 9.5 and 10%. .
Vaccination holds the key on the growth front, he said, warning that if vaccinations are insufficient it can reduce the estimated GDP growth by 1 percentage point.
The chief economist also said he was skeptical of the government’s ability to immunize more than 40% of the population with both doses by September or October.
However, one of the most closely watched aspects of the policy review will be the RBI’s expectations on inflation and the comments surrounding it, he said, adding that the inclusion of the word ” transitory ”in the context of inflationary pressures would mean a lot on the central bank’s position.
Bhattacharya said he expects the RBI to hold rates on Friday as per consensus, and added that he expects a hiatus until FY 23 as the focus is on an accommodating body and on helping to relaunch growth.
Friday’s policy measures may be accompanied by a second announcement of the government securities acquisition program, with a commitment by the RBI to buy another Rs 1 lakh crore of bonds within a given time frame, he said. declared.
Bhattacharya said the RBI will continue to support the government’s broad borrowing program and what to see is whether it lets yields climb to 6.2-6.3% or keeps them at 6% according to the current position.
The RBI will not reverse its growth-enhancing measures and liquidity movements until the December quarter, he said, adding that it could advance the same by a quarter if the reduction programs in advanced economies start earlier than expected.