By India Today Business DeskIndia’s growth momentum continues to be steady despite increased turbulence in the global economy, said the Reserve Bank of India (RBI) in its annual report for 2022-23.
Even as the global economy faces multiple headwinds in the form of inflation, growth slowdown, aggressive interest rate hikes and other geopolitical factors, India’s growth story remains resilient, as per the central bank’s report.
“In this turbulent global economic environment, India has experienced macroeconomic and financial stability with a steady pick-up in the momentum of growth. This reflects a sound macroeconomic policy environment and the innate resilience of the economy which fortified it against recurring global shocks,” RBI said in its report.
India’s outlook bright amid global turbulence
The report highlighted that India has remained among the fastest-growing major economies in the world, contributing to more than 12 per cent global growth on average during the past five years.
“As inflation eases from its high reaches under the combined impact of monetary policy actions and supply management, fiscal consolidation reduces debt and deficit levels from pandemic-induced highs, the current account deficit remains within sustainable levels; macroeconomic stability is getting entrenched,” the RBI said.
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The central bank added that strong and healthy balance sheets of banks, financial institutions and corporate entities “is helping regain growth momentum” which was eroded by the pandemic and the war between Ukraine and Russia.
“Medium-term prospects have been brightened by the demographic dividend, the digital revolution, policy initiatives to transform India into a global manufacturing hub, a resurgence in services sector competitiveness and favourable geo-economic positioning that is underway,” the RBI report said.
While the RBI mentioned that domestic economic activity faces challenges from an “uninspiring global outlook” going forward, resilient domestic macroeconomic and financial conditions, expected dividends from past reforms and new growth opportunities from global geo-economic shifts place India in an advantageous position.
FY24 GDP growth projection
The RBI said the real GDP growth for 2023-24 is projected at 6.5 per cent, even with the global risks.
The central bank said several factors, including lower inflation, good crop harvests, sustained growth in the contact-intensive services sector and the continued focus on capital expenditure, will drive sustained growth.
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“Taking into account softer global commodity and food prices, good rabi crop prospects, sustained buoyancy in contact-intensive services, the government’s continued thrust on capex, higher capacity utilisation in manufacturing, double digit credit growth, receding drag on purchasing power from high inflation and rising optimism among businesses and consumers, real GDP growth for 2023-24 is projected at 6.5 per cent with risks evenly balanced,” the RBI said.
Inflation to moderate further
On inflation, the RBI said risks related to price rises have moderated with downward corrections in global commodity and food prices.
It added that the cumulative increase in policy repo rate by 250 basis points since last year would steer the disinflationary process along with supply-side measures to address transient demand-supply mismatch due to food and energy shocks.
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“With a stable exchange rate and a normal monsoon – unless an El Nino event strikes – the inflation trajectory is expected to move down over 2023-24, with headline inflation edging down to 5.2 per cent from the average level of 6.7 per cent recorded last year,” RBI said.
“Monetary policy remains focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth,” it added.
On job landscape
The RBI said that the recent 36th round of the quarterly services and infrastructure outlook survey suggested that private companies in both sectors expect the job landscape to improve in the first quarter of this year.
It may be noted that the Periodic Labour Force Survey (PLFS) has already indicated that unemployment is on a downward trend in the country.
On banking sector
In its report, the RBI highlighted the recent financial sector turmoil in the US and Europe and said it has necessitated the need to reassess risks to the financial stability and resilience of financial institutions in the context of monetary tightening policy.
“While Indian banks and non-banking financial intermediaries remain sound and resilient, they need to stress test for these new shocks. Capital buffer and liquidity position, therefore, must be constantly reviewed and strengthened. Accordingly, policy measures, such as guidelines on introduction of expected loss-based approach for provisioning are likely to be announced during 2023-24,” RBI said.
“In addition, finalisation of guidelines on securitisation of stressed assets, and a comprehensive review of the prudential framework (including the guidelines on resolution of stress in respect of projects under implementation) are also likely to be undertaken during the year with the objective of further strengthening the resolution ecosystem,” RBI added.
Rodolfo Frami
Cakra News
