India can achieve sustainable growth of up to 8%: RBI chief

According to the country's central bank governor, India can achieve sustainable economic growth of up to 8% in the medium term.

His comments came shortly after data showed India's gross domestic product (GDP) contracted 6.7% in the second quarter, down from 8.2% in the same period last year. These figures have increased pressure on the central bank to start its rate-cutting cycle as soon as possible.

In an exclusive interview with CNBC's Tanveer Gill on Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das said the country's expected growth rate over the next few years is expected to be 7.5%, “with room for further increase.”

Das said it was hard to say what healthy growth would look like for the world's most populous nation, but that 7.5% to 8% growth “could be sustainable” over the medium term.

India has previously been described as the “world's fastest-growing major economy” by the International Monetary Fund, while Goldman Sachs says India is on track to become the world's second-largest economy by 2075 – surpassing Japan, Germany and the US to come second only to China.

However, India's growth has slowed in recent quarters and the IMF warned in July that economic expansion is likely to slow to 6.5% in 2025.

The move comes at a time when major central banks, including the European Central Bank, the Bank of England and the Swiss National Bank, have begun easing monetary policy in recent months.

It is widely expected that the US Federal Reserve will join the rate-cutting club later this week, adding further pressure on India to ease policy.

“It looks like it is the season for interest rate cuts,” Das said. “But seriously, you will see that our monetary policy will be primarily, I would like to emphasise, driven by our domestic macroeconomic conditions, our domestic inflation. [and] “The dynamics and future of development will be considered,” he said.

“So, we are governed by that. Yes, of course, whatever is happening around us, what the Fed does or what the ECB does or what some other central bank does, it impacts us, and we do take note of it,” Das said.

“But, ultimately, in the final analysis, our decision is driven by domestic factors.”

Fed policymakers have laid the groundwork for a rate cut ahead of their two-day meeting that begins Tuesday. The only question now is how much the Fed will cut rates.

Some economists have argued that the Fed should cut rates by 50 basis points, and have accused the central bank of taking monetary policy “too far, too fast” in the past.

Others have described the move as “too dangerous” for the market, and have called on the central bank to instead cut interest rates by 25 basis points.

Referring to the possibility of the Fed cutting interest rates, Das said, “We will not be influenced by how much they are cutting interest rates, whether it is 25 per cent or 50 per cent, or how much and how often they are cutting interest rates.”

Asked whether the RBI's Monetary Policy Committee (MPC) would actively consider cutting interest rates in early October, Das replied, “No, I cannot say that.”

“We will discuss and take a decision in the MPC, but as far as growth and inflation dynamics are concerned, I would like to say two things. Firstly, the growth momentum remains good, India's growth story is intact and as far as the inflation outlook is concerned, we have to look at the month-on-month dynamics,” he said. “Based on that we will take a decision.”