RBI policy may change if IIP slides further: Basu

RBI policy may change if IIP slides further: Basu

New Delhi: Within days of India reporting a 16-month low industrial growth of 4.4% for September, a top government economic advisor on Tuesday said industry is expected post a recovery in October, else the RBI will have to change its tight money policy stance.

“The data that you will get on 12 December (for October) should see a reasonably good recovery. If that does not happen then we will have to think in terms of policy change," chief economic advisor Kaushik Basu said on the RBI monetary stance.

Speaking on the sidelines of a summit at International Management Institute, he said that growth in the Index of Industrial Production (IIP) in the last 2-month has been a disappointment.

“But going by the base effect...I expect a sharp recovery, especially in the manufacturing sector, over the next month (October)," Basu said, adding that the country is on track for a good fiscal despite the slowdown.

He said, “I think the RBI policy has been a very matured and balanced policy...What it does on policy rates and such things will of course have to be evaluated and decided."

The CEA said he also expected a sharp decline in inflation within weeks.

“I think we are going to see in the next couple of weeks, including December, pretty sharp decline in inflation. So I expect us to move into a pretty good zone of inflation over the next month...next three weeks...the data you will get on food. And the middle of December should be an improvement," Basu said.

Industrial growth fell for the second consecutive month to a 16-month low of 4.4% in September. It was 6.91% in the previous month.

The wholesale price inflation has also come down to 8.58% in October, after being in double digit during the initial months of the year.

However, food inflation is still high and clocked 12.30% for the week ended 30 October.

Combined with declining inflation and industrial growth numbers, many analysts feel that RBI will press a pause button in its tight money supply stance, an indication of which was given by the central bank itself in its 2 November policy review.

The RBI has hiked the short-term lending (repo) and borrowing (reverse repo) rates by 150 and 200 basis points, respectively, this year. On 2 November, it had hiked both the rates by 25 basis points for sixth time this year.