How the RBI faltered in its growth projections for India

30 May 2020
Das was a key face of the demonetisation drive in 2016.
Das was a key face of the demonetisation drive in 2016.

In a press conference on 22 May, Shaktikanta Das, the governor of the Reserve Bank of India, described India’s economic situation as an “encircling gloom.” Referring to India’s gross domestic product post COVID-19, he added, “Given all the uncertainties, GDP growth in 2020–21 is estimated to remain in negative territory, with some pick-up in growth impulses from, H2: 2020–21 onwards.” H2 refers to the second half of 2020–2021 from October to March. 

The GDP is a vital macroeconomic parameter. While the RBI predicts GDP growth using its own methodology and conducts a survey of leading economists, the government's estimates are computed by the National Statistics Office. In his latest press conference, Das remained silent on the GDP growth numbers for 2019–20. But he detailed how domestic economic activity in the country had been battered by the COVID-19 lockdown. 

“The top six industrialised states that account for about 60 percent of industrial output are largely in red or orange zones,” he said. “High-frequency indicators point to a collapse in demand beginning in March 2020 across both urban and rural segments. … The biggest blow from COVID-19 has been to private consumption, which accounts for about 60 percent of domestic demand.” Das seemed unwilling to camouflage the disquiet.

This was unusual for Das, who is known to be optimistic in his public announcements. This same optimism was reflected in the RBI’s GDP growth projections for 2019–2020. A post-graduate in history, Das was appointed as the RBI governor in December 2018. He is the first non-economist RBI governor in nearly three decades. Prior to his appointment, Das was the economic-affairs secretary between August 2015 and May 2017. He stood firmly behind the Narendra Modi government when it announced the demonetisation drive in 2016. Das became a key face of the move, making several public statements and holding government press conferences. He also played a vital role in sewing up the draft legislation for the Goods and Services Tax, working closely with Arun Jaitley, who was the finance minister at the time.

A month ago, on 17 April 2020, when the Indian economy was already reeling under the pandemic-induced lockdown, Das preferred to be hopeful. Referring to the International Monetary Fund’s growth projection for India for the year 2020–2021, he said, “India is among the handful of countries that is projected to cling on tenuously to positive growth at 1.9 per cent. In fact, this is the highest growth rate among the G-20 economies.” He added that “India is expected to post a sharp turnaround and resume its pre-COVID, pre-slowdown trajectory by growing at 7.4 percent in 2021–22.” 

Anto T Joseph is a Mumbai-based senior journalist and a British Chevening Scholar. He has worked with DNA, the Economic Times, The Guardian (UK) and the Deccan Chronicle Group as a writer, editor and columnist.

Keywords: COVID-19 RBI Reserve Bank of India GDP economic growth