Growth rebound will sustain: RBI

Growth rebound will sustain: RBI
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New Delhi, Sep 2: In a hopeful signal for the Modi government ahead of assembly and Lok Sabha elections, the economy is witnessing a significant pick-up in investment activity, particularly in the politically sensitive job-generating medium and small industries, the RBI has said.
“To sum up, there are now clear signs of a significant pick-up in investment activity. Going by various indicators, investment activity is expected to strengthen further, going forward,” the RBI has told the Parliament’s standing committee on finance in a recent communication.
RBI’s assessment ties in with official statistics released on Friday that growth is back to 8% plus in the first quarter of 2018-19, marking a strong recovery since it dipped to 5.6% in the Q1 of 2017-18. Promisingly, slowing of credit to medium enterprises ebbed at 1.1% in 2017-18 and turned positive by May, 2018, a big change from a large contraction of 8.7% a year ago.
The central bank’s report card on economic trends will help the government battle the charge that demonetisation and “poor implementation” of GST hurt the economy, in particular, smaller business. “Credit to medium enterprises turned positive, while credit to large enterprises improved further (at 0.8%, up from a minus 1.7% in 2016-17),” RBI said.
The central bank has viewed improved capacity utilisation in a positive light, this being seen as one of the most stubborn and persistent reasons for sluggish investment and consequent question marks over the health of the economy. Capacity utilisation improved from 71% in Q3 of 2016-17 to 74% in Q3 of 2017-18 while financial resource mobilisation, after declining to 155 billion, rose sharply to 438 billion in 2017-18.
In detailed responses, the central bank said the drive to clean up non-paying assets of public sector banks is beginning to yield results.
“Early indications of the progress of these accounts seem encouraging. Some of these accounts have already reached a resolution stage or appear close to resolution…recoveries out of resolution will be net gains for banks,” the central bank said.
RBI has noted that credit growth to various sectors within industry has perked up, with regard to industries like food processing, vehicles, cement, and construction and engineering.
The central bank, which also notes a strong growth in digital transactions and a greater formalisation of the economy, said that “…capital goods imports, one of the key indicators of investment activity, has grown at an average annual rate of 16.8% since April, 2017”. It also said after contracting by 3.4% during April to July, 2017, growth in capital goods production turned around in August, 2017, growing at an average rate of 8.5% during August 2017-May 2018.