Governor, Reserve Bank of India
Statement by Shri Shaktikanta Das, Governor - MPC Aug 05, 2022
Statement by Shri Shaktikanta Das, Governor - MPC Aug 05, 2022.
About Shaktikanta Das
Shaktikanta Das, Principal Secretary to Prime Minister Narendra Modi and former Governor of the Reserve Bank of India, delivered several addresses in April 2026 focused on India’s economic resilience and reform agenda. Speaking at the CII Annual Business Summit 2026 and the All India Management Association’s National Leadership Conclave, Das described India’s navigation of recent global crises as akin to a "chakravyuh," where the challenge lies not in entering a crisis but in exiting it without creating new imbalances. He attributed India’s average annual GDP growth of 7.8% between 2021-22 and 2025-26 to targeted fiscal and monetary stimulus that was gradually withdrawn, structural reforms such as the goods and services tax and the insolvency and bankruptcy code, and a policy of strategic self-reliance (Atmanirbharta). Das also highlighted government initiatives including a ₹7,280 crore rare earth permanent magnet manufacturing scheme and a national critical mineral mission, and stated that inflation control benefits the poor by increasing real spending power. Das rejected the narrative that the Reserve Bank’s monetary policy had caused a growth slowdown, citing 7.1% GDP growth in 2024-25 as evidence. He emphasized that India’s growth is anchored in macroeconomic stability, contained inflation, fiscal consolidation, and a resilient financial system, and said there is "no reform complacency" in the government’s pursuit of its Viksit Bharat 2047 vision. At the AIMA conclave, he received a public service excellence award and remarked that resilience maximization is replacing cost minimization as a global priority.
Transcript (28 segments)
✨ AI-enhanced transcript with speaker attribution
S
Shaktikanta Das16:32
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Good morning, Namaskar. We will celebrate 75 years of our independence in another 10 days.
Fragmentation, reshoring of supply chains, and retrenchment of capital flows, which will pose long-term challenges to both globalization and the global economy itself. For emerging market economies (EMEs), these risks are magnified, as they have to contend with both domestic growth-inflation trade-offs and spillovers from the most synchronized monetary policy tightening worldwide. Emerging market economies are also facing rapid tightening of external financial conditions, capital outflows, currency depreciations, and reserve losses, all happening simultaneously. Some of them are also facing mounting burdens of debt and default. Elevated food and energy prices and shortages are rendering their populations vulnerable to insecurity of livelihood.
The Indian economy has naturally been impacted by the global economic situation. We have been grappling with the problem of high inflation. Financial markets have remained uneasy despite intermediate corrections. We have witnessed large portfolio outflows to the tune of USD 13.3 billion — I repeat, 13.3 billion — during the current financial year so far, that is till 3rd of August, that is still two days ago. Nevertheless, with strong and resilient fundamentals, India is expected to be amongst the fastest growing economies during the financial year 2022-23, according to the projections of the IMF. With signs of inflation moderating over the course of the current year, export of goods and services together with remittances are expected to keep the current account deficit within sustainable limits. The decline in external debt to GDP ratio, net international investment position to GDP ratio, and debt service ratio during 2021-22 impart greater resilience against external shocks.
I have the numbers for each of these parameters, which I mentioned; they are in the footnote of my statement, and the statement, as you know, gets uploaded immediately after my statement is over, so you can have a look at it. But for the benefit of the wider audience, if I can mention the exact numbers: external debt to GDP ratio fell from 21.2% in March 2021 to 19.9% in March 2022. Net international investment position to GDP ratio — that is net claims of non-residents — improved from minus 13.2% to minus 11.6% over the same time period. Debt service ratio declined from 8.2% in 2021 to 5.2% in 2021-22. Amidst all this, the financial sector remains well capitalized and sound. India's foreign exchange reserves, supplemented by net forward assets, provide insurance against global spillovers. Our umbrella remains strong.
I would now like to focus on the decisions and deliberations of the Monetary Policy Committee.
Against this background, the Monetary Policy Committee (MPC) met on 3rd to 5th August and reviewed the macroeconomic situation and its outlook. The MPC decided unanimously to increase the policy repo rate by 50 basis points — 5-0, 50 basis points — to 5.4%, with immediate effect. Consequently, the Standing Deposit Facility (SDF) rate stands adjusted to 5.15%, and the Marginal Standing Facility (MSF) rate and the Bank Rate stand revised to 5.65%. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
Let me now dwell briefly on the MPC's rationale for its decision on the policy rate and the stance. Against the prevailing adverse global environment, the MPC noted that domestic economic activity is resilient and progressing broadly along the lines of the June resolution of the MPC. Consumer price inflation has eased from its surge in April but remains uncomfortably high and above the upper threshold of the target, that is 6%. Inflationary pressures are broad-based, and core inflation remains at elevated levels. The volatility in global financial markets is impinging upon domestic financial markets, including the currency market, thereby leading to imported inflation. With inflation expected to remain above the upper tolerance threshold in Q2 and Q3 of the current financial year, the MPC stressed that sustained high inflation could destabilize inflation expectations and harm growth in the medium term. The MPC therefore judged that further calibrated withdrawal of monetary policy accommodation is warranted to keep inflation expectations anchored and contain the second-round effects. Accordingly, the MPC decided to increase the policy repo rate by 50 basis points to 5.4%. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
I would now like to provide an assessment of growth and inflation, and first I would like to focus on growth. Domestic economic activity is exhibiting signs of broadening. The southwest monsoon rainfall and reservoir levels are above normal. Current sowing is progressing well, although it is marginally below last year's level due to uneven rainfall distribution. On the demand side, indicators such as production of consumer durables, domestic passenger traffic, sale of passenger vehicles, and similar other indicators suggest improvement in urban demand. Rural demand indicators, however, exhibited mixed signals. While two-wheeler sales have increased, tractor sales contracted in June over, of course, a high base last year.
High frequency indicators of services sector like railway freight traffic, port traffic (port freight traffic), e-way bills, toll collections, and commercial vehicle sales remained robust in June and July. Investment activity is also picking up: the production of capital goods recorded double digit growth for the second month in a row in May, and import of capital goods also witnessed robust growth in June. PMI manufacturing rose to an eight-month high in July. PMI services indicated continued expansion in July, although it fell from an 11-year high that was seen in the month of June. Capacity utilization in the manufacturing sector is now above its long-run average, signaling the need for fresh investment activity and additional capacity creation. The numbers I have given in the footnote, but for immediate reference, let me mention that according to the RBI survey, capacity utilization in the manufacturing sector in Q4 of 2021-22 was 75.3%, relative to its long-term average of 73.7%.
Bank credit growth has also accelerated to 14% year-on-year as on 15th July — that is the latest data that we have — and this has accelerated from 5.4% that was recorded a year ago. Incoming data of corporates for the first quarter of the next year indicate that sales, demand conditions, and profitability of the manufacturing sector remained buoyant.
Looking ahead, a good progress of the southwest monsoon and kharif sowing would support rural consumption. Urban consumption is expected to benefit from the demand for contact-intensive services, better performance of corporates, and improving consumer optimism. The increase in capacity utilization, government's capex push, and large expansion in bank credit should support investment activity. According to our survey, manufacturing firms expect sustained improvement in production volumes and new orders in Q2 of 2022-23, which is likely to sustain through the fourth quarter also. At the same time, the domestic economy faces headwinds from global forces, namely protracted geopolitical tensions, rising global financial market volatility, tightening of global financial conditions, and global recession risks.
Taking all these factors into consideration, the real GDP growth projection for 2022-23 is retained at 7.2%, with Q1 at 16.2%, Q2 at 6.2%, Q3 at 4.1%, and Q4 at 4.0%, with risks broadly balanced. Real GDP growth for Q1 2023-24 is projected at 7%. Now there may be a question, which of course will come in the subsequent press conference, but I think to remove any ambiguity even at this point of time, let me say that somebody might ask that in Q3 and Q4 of the current year, the growth goes down to 4.1% and 4.0%, then suddenly it goes up to 6.7% next year. What is happening is that the base effect is at play, and the 4.1% and 4.0% in Q3 and Q4 of this year are primarily due to base effects. We can explain in more detail during the press conference which will come up at 12 PM.
Now let me focus on inflation. June 2022 was the sixth consecutive month when headline CPI inflation remained at or above the upper tolerance level of 6%. Looking ahead, the inflation trajectory continues to be heavily contingent upon the evolving geopolitical developments, international commodity market dynamics, global financial market developments, and the spatial and temporal distribution of the southwest monsoon. Since the last MPC meeting, however, there has been some let-up in global commodity prices, particularly in the prices of industrial metals, and also some softening in global food prices. Domestic edible oil prices are expected to soften further on the back of improving supplies from key producing countries and the government's supply-side measures. The resumption of wheat supply from the Black Sea region, which happened a couple of days ago, if it sustains, could help to temper international prices of wheat. Supply chain pressures, though elevated, are on an easing trajectory. Further, the advance of the southwest monsoon is by and large on track, and kharif sowing has picked up in recent weeks. The shortfall in kharif sowing of paddy, however, needs to be watched closely, although the huge buffer stocks that are available provide some kind of moderating impact on possible inflation.
Household inflation expectations have eased but they still remain elevated. Incidence of unseasonal and excessive rainfall, if any, can impact food prices, especially the prices of vegetables. Greater transmission of input cost pressures to selling prices across manufacturing and services sectors may also create fresh price pressures. Moreover, persistently elevated cost of living conditions could translate into higher wages and further price increases, especially if pricing power of firms strengthens. Taking into account these factors, and on the assumption of a normal monsoon in 2022 and average crude oil price (Indian basket) of USD 105 per barrel, inflation is projected at 6.7% in 2022-23, with Q2 at 7.1%, Q3 at 6.4%, and Q4 at 5.8%, with risks evenly balanced. CPI inflation for the first quarter of the next financial year 2023-24 is projected at 5%.
The inflation trajectory is now poised at a decisive point. While there are incipient signs of a confluence of factors that could lead to further softening of domestic inflationary pressures, there remain significant uncertainties. In such a milieu, with growth momentum expected to be resilient despite headwinds from the external sector, monetary policy should persevere further in its stance of withdrawal of accommodation to ensure that inflation moves close to the target of 4% over the medium term, while of course supporting growth. A calibrated approach would provide sufficient flexibility to monetary policy in the current uncertain environment.
I would now like to turn to liquidity and financial market conditions. The introduction of the Standing Deposit Facility (SDF) in April this year, which raised the floor of the Liquidity Adjustment Facility (LAF) corridor by 40 basis points, along with policy repo rate hikes of May and June, have effectively resulted in withdrawal of accommodation by 130 basis points. Consequently, the Weighted Average Call Rate (WACR), which is the operating target of monetary policy, has commensurately firmed up. At the longer end of the money market, interest rates on 91-day Treasury bills, commercial papers, and certificates of deposit have also moved higher since April. The rate hikes also triggered an upward adjustment in the benchmark lending rates by banks. Term deposit rates are also increasing, which should bode well for availability of funds with the banks in the context of sustained buoyancy in credit demand.
Surplus liquidity in the banking system, as reflected in average daily absorptions under the LAF (both SDF and Variable Rate Reverse Repo (VRRR) auctions put together), moderated to ₹3.8 lakh crore during June-July this year, against ₹6.7 lakh crore during April-May. In other words, what I am saying is that thanks to the efforts taken by the RBI to undertake the SDF measure and the VRRR measures, the surplus liquidity in the banking system has come down from ₹6.7 lakh crore in April-May to ₹3.8 lakh crore during June-July this year. The sharp moderation in surplus liquidity from July 20th of this year, mainly on account of tax and capital outflows, resulted in money market rates firming up above the repo rate. To alleviate the liquidity stress, the RBI conducted a Variable Rate Repo (VRR) auction of ₹50,000 crore of three days maturity on July 26th. Going forward, and as indicated in my statement of February 2022, the RBI will remain vigilant on the liquidity front and conduct two-way fine-tuning operations — variable rate repo (VRR) operations and variable rate reverse repo (VRRR) operations — as and when warranted, depending on the evolving and prevailing liquidity situation, and these will be of different tenors.
During the current financial year, till yesterday (August 4th), the US Dollar Index (DXY) has appreciated 8% against a basket of major currencies. In this milieu, the Indian rupee has moved in a relatively orderly fashion, depreciating 4.7% against the U.S. dollar during the same period, till yesterday. So the rupee depreciation has happened in an orderly fashion, thanks to the stated policy of RBI and thanks to our steady intervention in the market to prevent volatility. The rupee has depreciated by 4.7% against the U.S. dollar till yesterday, and it has fared much better than several reserve currencies, as well as many emerging market currencies and many of our Asian peers. As I started reading this statement, the rupee since this morning has appreciated, and I think the depreciation, instead of being 4.7%, would be a little lower, but we have to wait till the end of the day; it is a continuing process. The depreciation of the Indian rupee is more on account of the appreciation of the U.S. dollar than weaknesses in macroeconomic fundamentals of the Indian economy. Market interventions by the RBI have helped in containing volatility and ensuring orderly movement of the rupee. We remain watchful and focused on maintaining stability of the Indian rupee.
The Indian financial system, as I mentioned earlier, remains resilient. This will help the economy in emerging out of the shadows of the pandemic and the impact of the war in Europe. While the banking system remains well capitalized and profitable, a deleveraged corporate sector augurs well for sustaining the economic recovery.
I would now like to talk a little bit about the external sector. India's external sector has weathered the storm while navigating through recent global spillovers. Merchandise exports grew in April to July, while merchandise imports surged to a record high on the back of elevated global commodity prices. Consequently, the merchandise trade deficit expanded to USD 100 billion in April to July this year. Provisional data, however, indicate that demand for services exports, especially in IT services, remain buoyant in the first quarter despite global uncertainty. Exports of travel and transport services also improved in the first quarter of this year on a year-on-year basis. From the external financing perspective, net Foreign Direct Investments (FDI) at USD 13.6 billion in the first quarter of the current financial year was robust, as compared to USD 11.6 billion in the first quarter of last year. So FDI inflows have improved from USD 11.6 billion to USD 13.6 billion. Foreign Portfolio Investment, after remaining in exit mode during Q1 2022-23, turned positive in July this year. Along with several other measures undertaken in July, the Reserve Bank has also used its foreign exchange reserves accumulated over the years to curb volatility in the exchange rate. Despite the resultant drawdown from our reserves, India's foreign exchange reserves remain the fourth largest globally.
I shall now announce certain additional measures, the details of which are set out in the Statement on Developmental and Regulatory Policies, which forms Part B of the MPC statement and will be uploaded on the website immediately after my statement is over. The additional measures are as follows. The first set of measures relate to regulatory measures for Standalone Primary Dealers (SPDs). SPDs have played an important role in the development of financial markets in India. Considering their potential in further facilitating financial market development, the following two measures are being announced. First, it is proposed to enable SPDs to offer all foreign exchange market making facilities as currently permitted to Category I Authorized Dealers, subject to prudential guidelines. This measure will provide customers with a wider set of market makers to manage their foreign currency risk and will also increase the breadth of the forex market in India. Second, we have decided to permit SPDs to undertake transactions in the offshore rupee overnight indexed swap (OIS) market with non-residents and other market makers. This measure will supplement a similar measure announced in February this year for the banks. These measures are expected to remove the segmentation between onshore and offshore OIS markets and will definitely improve price discovery.
The second measure relates to managing risks and prescribing a code of conduct in outsourcing of financial services. The Reserve Bank has from time to time issued guidelines on managing risks in outsourcing of certain activities by the regulated entities. In view of the increasing trend of outsourcing, the framework for regulated entities to manage the associated risks needs to be suitably strengthened. Therefore, to harmonize and consolidate the existing guidelines, a draft Master Direction on Managing Risks and Code of Conduct in Outsourcing of Financial Services will be issued shortly for comments from stakeholders.
The next measure relates to the Bharat Bill Payment System (BBPS) for processing cross-border inward bill payments. Let me spell out what exactly it is. The BBPS is an interoperable platform for standardized bill payments. This has transformed the bill payment experience for users in India. Over 20,000 billers are part of this system, and more than 8 crore transactions are processed on a monthly basis. It is now proposed to enable this system to accept cross-border inward bill payments. This will enable Non-Resident Indians (NRIs) to undertake bill payments for utility, education, and other such payments on behalf of their families in India. This measure will greatly benefit senior citizens in particular.
The next measure relates to Credit Information Companies (CICs). The Reserve Bank Integrated Ombudsman Scheme, introduced last year, has improved the customer grievance redress mechanism. The turnaround time of grievance redress under the scheme has declined considerably. To make this system more broad-based, it has been decided to include CICs under the framework of the Integrated Ombudsman Scheme of the RBI. This will provide a cost-free alternative redress mechanism for grievances against CICs. Further, with a view to strengthen the internal grievance redress by the CICs themselves, it has been decided to mandate the CICs to have their own internal ombudsman framework.
The next measure relates to setting up a committee on the MIBOR benchmark. The Reserve Bank has been taking measures to develop the interest rate derivative market in India. Such measures have led to diversification of the participant base and increased use of interest rate derivative instruments such as the Mumbai Interbank Overnight Rate (MIBOR) OIS contracts. In view of the recent international efforts to develop alternative benchmark rates, it is proposed to set up a committee to undertake an in-depth examination of the issues, including all relevant issues including the need for transition to an alternative benchmark for MIBOR, and suggest the way forward.
Now let me try and conclude. The Indian economy is holding steady and progressing in an ocean of turbulence and uncertainty. As we celebrate Azadi Ka Amrit Mahotsav, this is a moment of reckoning, reflection, and renewed resolve to work for the betterment of our economy. We in the RBI reiterate our commitment to maintain price and financial stability, to place our economy on a sustainable path of growth. Our actions have helped the economy to tide over a series of shocks in the last two and a half years. We are seized of our role at this critical juncture and will persevere in our efforts to ensure a safe and soft landing. So it's now basically a 'whatever it takes' approach, going into a third year in succession. This is a moment to recall a quote from the father of the nation, Mahatma Gandhi, and I quote: 'For me, the road to salvation lies through incessant toil in the service of my country and thereby of humanity.' Thank you, Namaskar.
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