Expressing confidence in domestic consumption and economic growth, State Bank of India (SBI) Chairman Dinesh Khara has said that domestic demand is likely to remain robust and will continue to support economic growth. Khara is also of the view that the monetary tightening amid the fight against inflation will not affect the credit-off take and investment cycle in the economy.

“India is one of the best performing economies of this size across the globe. FIIs are coming back again. All said and done, the Indian economy is a domestically oriented economy. Domestic demand is one of the most important components. We see fairly robust domestic demand supporting the economic growth,” Khara told Fortune India.  

In its fight against rising prices, the Reserve Bank of India has now reversed the interest rate cycle. The policy lending rates have been going up since May this year leading to a downward revision in the Indian GDP growth for the current financial year. Khara is of the view that going by the capacity utilisation in the economy, a dent on the investment cycle is unlikely.

“Irrespective of growth projections, the capacity utilisation is 75.3%. That is a reflection of what kind of activity is happening in the economy. So credit growth is a function of capacity utilisation in the economy,” said Khara.

Bucking the downward trend, India's retail inflation, measured as Consumer Price Index (CPI), mounted the 7% rate mark in August owing to high food and energy prices. The food prices have remained up due to the uneven progress of monsoon in the country. The annual retail inflation rate in July stood at a five-month low of 6.71 percent. Inflation had been rising in the country since early this year.  

Responding to the trend reversal witnessed in the retail inflation, the finance ministry said the hike is attributable to an adverse base effect and increase in transient components of the consumer price index (CPI) based inflation like food and fuel prices. The Finance ministry also said that the impact of export curbs on food products will be felt “more significantly” in the coming weeks and months.

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