The Reserve Bank on Wednesday lowered the economic growth projection for 2017-18 to 6.6 per cent, but said that it will accelerate to 7.2 per cent in the next financial year as the roll-out of GST stabilises and credit offtake improves.
The statement, issued after the 2-day meeting of the 6-member Monetary Policy Committee of the Reserve Bank of India, also said that recapitalisation of public sector banks along with resolution of stressed assets under the Insolvency and Bankruptcy Code (IBC) will create demand for fresh investments.
"GVA (Gross Value Added) growth for 2017-18 is projected at 6.6 per cent," it said.
In the December policy review, MPC had forecast that the GVA would expand by 6.7 per cent.
For the next fiscal, 2018-19, the central bank said that the implementation of the Goods and Services Tax (GST), rolled out on July 1 last year, is stabilising and augurs well for economic activity.
"There are early signs of revival in investment activity as reflected in improving credit offtake, large resource mobilisation from the primary capital market, and improving capital goods production and imports," it said.
Further, the process of recapitalisation of public sector banks has gotten underway and large distressed borrowers are being referenced for resolution under the IBC, it said.
"This should improve credit flows further and create demand for fresh investment," the RBI said, adding that export growth is expected to improve further on account of improving global demand.
RBI said that GVA expansion in 2018-19 is projected at 7.2 per cent overall "in the range of 7.3-7.4 per cent in H1 and 7.1-7.2 per cent in H2" with risks evenly balanced.
The MPC noted that the economy is on a recovery path, including early signs of a revival of investment activity, the RBI said. Also, global demand is improving, which should help strengthen domestic investment activity.
"The focus of the Union Budget on the rural and infrastructure sectors is also a welcome development as it would support rural incomes and investment, and in turn provide a further push to aggregate demand and economic activity," it said.
The MPC has flagged the deterioration in public finances risk crowding out private financing and investment as a "downside" to the growth outlook.