The Indian economy continued to sustain the momentum achieved in the first half of 2023-24, going by high-frequency indicators and the expectations of a fresh round of capex by the corporate sector are likely to fuel the next leg of growth, said the Reserve Bank of India (RBI) in its February Bulletin released on Tuesday.
The funds raised through external commercial borrowings (ECBs) for capex and initial public offerings (IPOs) remained robust during the second and third quarters of the current financial year, though their levels were lower than such resources raised during Q1 2023-24.
The central bank also added in its monthly State of the Economy article that India’s inflation expectations may stabilise and edge down going ahead but renewed pressures from cereals and proteins cannot be ruled out.
RBI on India’s inflation
Overall inflation developments are turning favourable, providing a stable environment for corporates to plan expansion strategies in anticipation of a pick-up in demand, according to the RBI. The country’s retail inflation eased to a three-month low of 5.1 per cent in January 2024, from 5.69 per cent in December 2023.
“Core inflation is at its lowest since October 2019 and non-food wholesale price inflation remains in deflation. This should augur well for the input cost outlook and selling prices of manufacturing firms,” said the central bank. “Stable and low inflation at four per cent provides the bedrock for sustaining economic growth,” said the RBI.
On inflation, it said consumer price inflation came off its November-December spikes in its January 2024 reading, while core inflation is at its lowest since October 2019. The RBI has projected the retail inflation at 4.5 per cent for 2024-25 financial year.
The RBI’s Monetary Policy Committee (MPC) panel noted that large and repetitive food price shocks are impeding the disinflation engendered by the steady easing of core inflation, with geopolitical events and their impact on supply chains, and volatility in international financial markets and commodity prices posing upside risks.
RBI on Indian economy
The RBI added that the evolving conditions are turning favourable on the agriculture front as well for the next financial year. The likelihood of the global economy exhibiting stronger-than-expected growth in 2024 has brightened in recent months, with risks broadly balanced, the central bank said. The RBI has projected the GDP growth for the next fiscal at seven per cent.
In a separate article, the RBI said internal simulations showed that the government’s debt-to-GDP ratio would swerve below the projected path set out by the International Monetary Fund (IMF) in its latest Article IV consultation report for India.
With the recalibrating expenditures, India’s debt-GDP ratio is projected to drop to 73.4 per cent by 2030-31, around five percentage points lower than the IMF’s projected trajectory of 78.2 per cent, the central bank said.
“It is in this context that we reject the IMF’s contention that if historical shocks materialise, India’s general government debt would exceed 100 per cent of GDP in the medium-term and hence further fiscal tightening is needed.”
Earlier this month, the RBI’s rate-setting panel decided that monetary policy must remain disinflationary to ensure anchoring of inflation expectations and the progressive alignment of inflation outcomes with the target, while supporting growth. On February 8, the RBI’s MPC had left the policy repo rate unchanged at 6.5 percent for the sixth straight meeting.