India’s potential growth rate below 7%: RBI paper


Mumbai: What is the potential growth rate of the Indian economy? The question, the answer to which is key to policy decisions such as how far interest rates should be lowered, has always been an actively debated one. The latest estimate of the country’s potential growth rate comes from a working paper released by the Reserve Bank of India (RBI) on Thursday that pegs it at below 7%, having decelerated from levels of around 8% in 2003-08.

India’s potential growth for the most recent period is about 6.8%, with a band of (+/-) 50 basis points (bps), found a working paper authored by Barendra Kumar Bhoi and Harendra Kumar Behera from RBI’s monetary policy department. A basis point is one-hundredth of a percentage point.

“Potential growth had increased steadily from its low level of around 5% in 1980s to about 6% during 1992-2002 and accelerated to around 8% during 2003-2008,” said the paper, adding that potential growth fell significantly in the post-global crisis period to around 7% in the years between 2009 and 2015.

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