The Reserve Bank of India (RBI), in its March bulletin, has said India's real GDP growth, which was at a six-quarter high in Q3:2023-24, powered by strong momentum, robust indirect taxes, and lower subsidies, will continue its momentum in the coming quarters.
The central bank has attributed the high visibility of structural demand and healthier corporate and bank balance sheets as the galvanising forces for growth going forward. "The Indian economy is experiencing a conducive macroeconomic configuration that can be its launching pad for a step-up in its growth trajectory."
Defying all estimates, India’s economy grew to a six-quarter high at 8.4% in Q3 FY24 and exhibited over 8% growth in the preceding two quarters.
The global economy, on the other hand, is losing steam, with growth slowing in some of the most resilient economies and high frequency indicators pointing to further levelling in the period ahead, according to the RBI’s State of the Economy report.
It says over the period 2021-24, India's growth has averaged above 8%; and the underlying fundamentals indicate this can be sustained and even built upon.
Inflation, says the RBI, is on the ebb; the steady decline in core inflation would have taken down headline inflation towards the target of 4% even sooner and faster, but for the repetitive incidence of short amplitude food price pressures.
Retail inflation, measured by the consumer price index (CPI), cooled to a four-month low at 5.09% in February 2024 vs 5.10% in January 2024. However, the reading showed the winter easing of vegetable prices turned out to be shallow and shortlived, says the RBI, adding that overall, inflation’s momentum turned positive in February, offsetting a favourable base effect.
The CPI inflation reading shows cereal prices maintained strong momentum, and prices of meat and fish have registered a surge. “Food price pressures on the headline have been capped by core disinflation to among its lowest prints in the series. The softening of core inflation has been broad-based. Fuel prices remain in deflation and this may get pronounced in March due to the reduction in price of liquified petroleum gas (LPG).”
Accordingly, the RBI says, the monetary policy has to remain in a risk-minimisation mode, guiding inflation towards the target while sustaining the momentum of growth.
The RBI says other indicators also point to abiding macro and financial stability. "The current account deficit is modest, external buffers are resilient and fiscal consolidation is into its third consecutive year even as corporations are deleveraging and improving their debt servicing capacity. Balance sheets in the financial sector are sound and healthy, providing the wherewithal for intermediating the productive credit needs of a resurgent economy. Financial markets are reflecting these favourable formations."
On capital inflows, the central bank says these have resumed strongly as investor interest floods back into India. Technology is offering new growth opportunities to seize by becoming more competitive and efficient, it adds.
