India is relatively insulated from deflationary tendencies due to strong demand trends, but there is still a need to be watchful, Minister of State for Finance Jayant Sinha said on Thursday.
“These are powerful deflationary forces that are at work in the global economy. India of course remains a very bright spot in the global economy because we have growth, we have some inflation and we have very robust underlying demand trends,” Mr. Sinha said on the sidelines of the 55th Annual Session and National Conference of the Automotive Component Manufacturers Association of India.
“Of course, RBI takes into account all of that data and [Reserve Bank of India Governor Raghuram] Rajan, I am sure, will apply his judgement to all of these matters,” he added, responding to a question on whether the RBI will cut interest rates before its scheduled policy meeting on September 29.
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Chief Economic Adviser Arvind Subramanian had on Wednesday flagged deflation as an issue that could be of concern. “The one real challenge that looms ahead for India’s economy appears not to be price inflation but possibly price deflation,” Dr. Subramanian said.
Mr. Sinha also backed up the CEA’s assertion that India will likely touch a growth rate of 8 per cent for the entire financial year, despite growing at 7 per cent in the first quarter of this financial year.
“Some of the public investment that we are ramping up now, strong demand trends and hopefully a reasonable monsoon will enable us to achieve the 8 per cent GDP growth,” Mr Sinha said.
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With the government working hard to increase the ease of doing business, and the strong demand in the economy, Foreign Institutional Investors are likely to start returning to the country, he added.
During his speech at the event, Mr Sinha expressed his disappointment over the Goods and Services Bill not being passed in the Monsoon session of Parliament. “I am deeply disappointed that GST could not be passed in Parliament. I appeal to my colleagues across the aisle to recognise the national consensus that GST is a needed legislation and to work together to achieve it,” he said.
Speaking about the auto components sector, Mr Sinha said that he was impressed by the achievements of the sector. “The auto sector will power Indian manufacturing, and in that the auto components sector will play a vital role,” he said.
Growth in the sector has been outstanding in a global scenario of slow growth, he added.
On the government’s part, Mr Sinha said that several steps are being taken to further help the sector. “We are here to support the sector and provide a platform. Skills India is one programme where we providing hands-on skills to workers so they can join industry, including the auto components industry,” he said.
In addition, the government is planning an investment of Rs 8.5 lakh crore in the Indian Railways, following a decade of under-investment, he said, adding that investments in roads have doubled and the National Infrastructure Investment Fund will further help in providing investment in the infrastructure sector.