The Reserve Bank on Wednesday retained growth projections for the current fiscal at 7.4 per cent on hopes of further boost to investments and higher consumption.
The Indian economy had grown at 6.7 per cent last fiscal.
In its second bi-monthly monetary policy review for 2018-19, RBI said however that the sharp rise in petroleum product prices is likely to impact disposable incomes.
The central bank said domestic economic activity has exhibited sustained revival in recent quarters and the output gap has almost closed.
“Investment activity, in particular, is recovering well and could receive a further boost from swift resolution of distressed sectors of the economy under the Insolvency and Bankruptcy Code,” the monetary policy statement issued by the RBI said.
On the basis of an overall assessment, GDP growth for 2018-19 is retained at 7.4 per cent as in the April policy, the RBI said.
US-based credit rating agency Moody’s had last week cut India’s growth forecast to 7.3 per cent from the previous estimate of 7.5 per cent, saying higher oil prices and tighter financial conditions will weigh on the pace of acceleration.
RBI projected GDP growth to be between 7.5-7.6 per cent in the April-September period and 7.3-7.4 per cent during October-March, with risks evenly balanced.
It said that with improving capacity utilisation and credit offtake, investment activity is expected to remain robust even as there has been some tightening of financing conditions in recent months.
Global demand has also been buoyant, which should encourage exports and provide a further thrust to investment. Besides, Consumption, both rural and urban, remains healthy and is expected to strengthen further, the RBI said.
It, however, said that geo-political risks, global financial market volatility and the threat of trade protectionism pose headwinds to the domestic recovery.
“It is important that public finances do not crowd out private sector investment activity at this crucial juncture. Adherence to budgetary targets by the Centre and the States which appears to be the case thus far will also ease upside risks to the inflation outlook considerably,” the RBI said.
Since the Monetary Policy Committee (MPC) meeting in early April, the price of Indian basket of crude surged from USD 66 a barrel to USD 74.