Even as the world economy faces divergent near-term prospects, emerging market economies led by Asia and India are poised to outperform the rest of the world, Reserve Bank of India (RBI) officials led by Deputy Governor Michael Debabrata Patra wrote in an article in the January edition of the RBI Bulletin.
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Noting that the Indian economy was poised to record ‘stronger-than-expected growth in 2023-24, underpinned by a shift from consumption to investment, the officials asserted: “The government’s thrust on capex is starting to crowd-in private investment.” They also observed that headline inflation had recorded a marginal uptick in December -- to 5.7% from 5.6% in November -- driven by “higher food inflation due to unfavourable base effects”.
The 14 basis points (bps) increase in inflation came primarily from an unfavourable base effect of about 50 bps, which more than offset a negative price momentum of about 30 bps, they added.
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Stating that core inflation (which strips out food and fuel prices) moderated to 3.8% in December, its lowest print in more than 4 years, from 4.1% in November, they said the moderation was broad-based, with sub-groups such as clothing and footwear, household goods and services, health, education, personal care and effects, and pan tobacco and intoxicants recording declines. Inflation in housing, transport and communication, and in recreation and amusement, however, remained steady.
Emphasising that In India, potential output was picking up, with actual output running above it although the gap was moderate, they said in in 2024-25, the objective ought to be to sustain momentum by securing real GDP growth of at least 7% in an environment of macroeconomic stability.
“Accordingly, inflation needs to align with the target by the second quarter of the year, as projected, and get anchored there. Balance sheets of financial institutions need to be strengthened and asset quality improved even further,” they added.