If the Reserve Bank of India (RBI) decision to hold its policy rate at 5.15% was a surprise, its snipping of India’s growth projection for fiscal 2019-20 was not—except the extent of the cut. By RBI’s latest estimate, the economy shall expand by just 5% this year, down from the 6.1% expected in October. Has something drastic happened?

Well, the earlier forecast was based on the expectation of a recovery in the second half of this year, with annual growth seen as hitting a range of 6.6%-7.2%. As it turns out, hope had got the better of reality. RBI has scaled the second half’s estimate down to 4.9%-5.5%. Perhaps it learnt from its experience of the year’s second quarter. It had expected 5.3% in October. The actual growth figure was 4.5%.

Rather than take a credibility hit, the central bank appears to have gone into realism mode. What it means is that a near-term economic recovery is unlikely, unless something changes that alters the gloom narrative in a big way. What could it be? While monetary policy has more or less reached the limit of its stimulative power, as RBI’s refusal to cut its repo rate suggests, badly aimed state-spending spree could result in stagflation beyond a point. This being so, a burst of reforms from New Delhi may be the best option. But reform expectations need to be tempered with the recognition that all the easy stuff has already been done, and further efforts to grant market forces greater play in India could prove to be a hard and long grind. All eyes will now turn to finance minister Nirmala Sitharaman’s budget to see what the government does to spur growth

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