India’s growth momentum likely to be sustained in FY24, says RBI in Annual Report

RBI reported that the Indian economy will be supported by sound macroeconomic policies, softer commodity prices, and a robust financial sector among other things

Updated - May 30, 2023 08:39 pm IST

Published - May 30, 2023 07:51 pm IST - MUMBAI

A woman walks past the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai, India, on April 6, 2023. India’s growth momentum is likely to be sustained in 2023-24 in an atmosphere of easing inflationary pressures, the Reserve Bank of India (RBI) said in its Annual Report 2022-23. Image for representational purposes only.

A woman walks past the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai, India, on April 6, 2023. India’s growth momentum is likely to be sustained in 2023-24 in an atmosphere of easing inflationary pressures, the Reserve Bank of India (RBI) said in its Annual Report 2022-23. Image for representational purposes only. | Photo Credit: Reuters

India’s growth momentum is likely to be sustained in 2023-24 in an atmosphere of easing inflationary pressures, the Reserve Bank of India (RBI) said in its Annual Report 2022-23. The central bank added that the economy will be supported by sound macroeconomic policies, softer commodity prices, a robust financial sector, continued fiscal policy thrust on quality of government expenditure, and new growth opportunities stemming from global realignment of supply chains.

However, it said that slowing global growth, protracted geopolitical tensions and a possible upsurge in financial market volatility following new stress events in the global financial system could pose downside risks to growth.

“It is important, therefore, to sustain structural reforms to improve India’s medium-term growth potential,” the central bank said in a chapter.

While emphasising that domestic economic activity does face challenges from an uninspiring global outlook going forward, it however said that 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.

Stating that risks to inflation have moderated with downward corrections in global commodity and food prices and easing of the pass-through from high input cost pressures of last year, it said the cumulative increase in policy repo rate by 250 bps last year would steer the disinflationary process, along with supply side measures to address transient demand-supply mismatch due to food and energy shocks.

“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% from the average level of 6.7% recorded last year,” it said.

“Monetary policy remains focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth,” it added.

As per the Annual Report the realignment of global supply chains, transition to green energy and ongoing technological advancements provide a congenial environment for a pick-up in investment activity and raising productivity.

“Robust balance sheets of corporates and banks, coupled with high capacity utilisation, would aid in strengthening the momentum in private investment,” it said.

“Burgeoning credit growth, especially housing and personal loans, reflects steady domestic household demand. This is also mirrored in several high frequency indicators of rural and urban demand,” it added.

Robust agriculture production buoyed by expectation of a bountiful rabi harvest and resilience in allied sector activity are also brightening the outlook for rural demand, the RBI said in the annual report.

“Traction in construction activity is likely to be sustained as reflected in steady expansion in its proximate indicators: steel consumption and cement production,” it said.

“Port cargo traffic and railway freight traffic movements also point to industrial activity picking up amidst gradual easing of input cost pressures,” it added.

Amidst strong global headwinds, the Indian economy is expected to have recorded a growth of 7.0% in real GDP in 2022-23, the central bank said.

Agriculture and allied activities were resilient in 2022-23, with gross value added (GVA) registering a growth of 3.3%, it said.

In the industrial sector, manufacturing activity withstood global spillovers, while electricity generation exhibited robust growth, and mining recorded steady activity. Sustained momentum was seen in construction activity, while infrastructure and capital goods production benefitted from the government-led investment in infrastructure, it added.

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