India to defy slowdown, to maintain growth pace: RBI

Article published by RBI notes “steady gathering of economic momentum since Q2”.

Reserve Bank of India (RBI)

Notwithstanding the global slowdown and the bank collapses in the US, a Reserve Bank of India (RBI) article on Tuesday took the sanguine view that Indian economy might maintain the current year’s pace of expansion in the next financial year.

Referring to the forecasts between 6-6.5% for the country’s GDP growth for 2023-24, the authors said the real GDP can go up from Rs 159.7 trillion in 2022-23 to not just Rs 169.7 trillion in 2023-24, as  is being projected, but to Rs 170.9 trillion, if Budget proposals to boost consumption and investments are implemented.  

The optimistic prediction is based on the assumptions that at least 50% of the Rs 35,000 crore of tax relief proposed in the Budget is used by taxpayers for consumption and at least a third of the additional allocation of Rs 3.2 trillion budgeted for effective capital expenditure materialses. “Unlike the global economy, India would not slow down – it would maintain the pace of expansion achieved in 2022-23. We remain optimistic about India, whatever the odds,” said the article on the state of the economy published in the March edition of the RBI bulletin.

“The NSO’s end-February data release indicates that the Indian economy is intrinsically better positioned than many parts of the world to head into a challenging year ahead, mainly because of its demonstrated resilience and its reliance on domestic drivers,” it added. Even as global growth is set to slow down or even enter a recession in 2023 as global financial markets wager, India has emerged from the pandemic years stronger than initially thought, with a steady gathering of momentum since the second quarter of the current financial year, it said.

“Year-on-year growth rates do not reflect this pick-up of pace because by construction they are saddled with statistical base effects, and instead suggest a sequential slowing down through successive quarters of 2022-23 to an unsuspecting reader,” said the article.

The article, however, added that retail inflation remains high, and core inflation defies softening of input costs. India’s retail inflation eased to 6.44% in February from 6.52% in January. The moderation in headline inflation by 8 bps between January and February was driven by a favorable base effect of 24 basis points, which more than offset the positive momentum of 17 basis points, RBI said its state of the economy report.

“The prices of cereals and milk have been driving up recent inflation prints, although open market sales by the Food Corporation of India (FCI) have tempered the prices of wheat, which may continue into the March reading. The all-important question is: will the rabi harvest survive the heat wave or the untimely rains and hailstorms?,” RBI said. In 2023-24, core inflation is expected to be in the range of 5-5.6%.

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First published on: 22-03-2023 at 02:15 IST