Reality check for RBI as slowdown deepens

India’s central bank has finally accepted the inevitable – growth in the $2tn economy is slowing more than it expected.It means recovery from an unprecedented cash ban imposed late last year by Prime Minister Narendra Modi will be a long, drawn out one and not the V-shaped bounce Governor Urjit Patel had hoped for.With growth estimated to slow to a four-year low, the door’s open for more easing by the Reserve Bank of India in coming months as pressure builds on it to provide a boost to the economy that has been roiled by a chaotic roll out of the goods and services tax and the after-effects of the cash ban.Of course, the downgrade to growth by the central bank risks hurting inflows from foreign investors, many of whom have been pulling money out of high-yielding Indian assets in recent weeks.“The implementation of the goods and services tax so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short term,” the central bank said in a statement released on Wednesday. “This may further delay the revival of investment activity.”Earlier, the RBI kept the benchmark rate at a seven-year low of 6% and painted a rather subdued picture of the economy. It cut its growth forecasts following a slew of downgrades by investment banks and private sector economists.It seems the RBI is not confident on growth at a time when inflation is reflecting cost-push pressures, said Rupa Rege Nitsure, chief economist at Mumbai-based L&T Finance Holdings Ltd. “It has kept alive the hope that RBI will cut rates to push growth.”In a February interview with the CNBC Television18 Network, Patel was confident that India will bounce back quickly from the cash ban.“Almost everyone agrees that the impact is going to be a sharp ‘V,’ that we would have a downgrade of growth for a short period of time,” Patel said on February 17.Far from it. Growth in India has been slowing for the past five quarters and a Bloomberg survey published last week forecast India’s GDP will grow at 6.8% in the financial year through March 2018. The RBI cut its forecast for gross value added – a key input of GDP – to 6.7% from 7.3%.