The Reserve Bank of India (RBI) has said India’s growth momentum “is likely to be sustained in 2023-24 in an atmosphere of easing inflationary pressures”.In an annual report submitted to the central government on Tuesday, the RBI said the momentum is likely to be sustained in 2023-24 on the back of sound macroeconomic policies, softer commodity prices, a robust financial sector, a healthy corporate sector, continued fiscal policy thrust on quality of government expenditure, and new growth opportunities stemming from global realignment of supply chains.
The central bank said slowing global growth, protracted geopolitical tensions and a possible upsurge in financial market volatility following new stress events in the global financial system, however, could pose downside risks to growth. “It is important, therefore, to sustain structural reforms to improve India’s medium-term growth potential,” it said.“Global growth is expected to slow down in 2023 and may remain subdued in the medium run. As per the IMF’s World Economic Outlook released in April 2023, global growth for 2023 at 2.8 per cent is likely to be followed by medium-term growth plateauing at 3 per cent,” the central bank added.
Globally, disinflation efforts are expected to take down headline inflation from 7.3 per cent to 4.7 per cent in 2023 among advanced economies (AEs), and from 9.8 per cent to 8.6 per cent among emerging market and developing economies (EMDEs), the central bank said, adding that progress was, however, likely to be gradual amidst sticky and elevated upside pressures.The report said 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 per cent from the average level of 6.7 per cent recorded last year.
“Monetary policy remains focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth,” the central bank said.The March 2023 round of the RBI’s consumer confidence survey revealed that the current situation is perceived by consumers to have improved on account of optimism in the general economic situation and in household income. “Future expectations also remain positive,” the central bank said.
Households’ spending on non-essential items is expected to rise over the year ahead, the RBI said in the report. According to the 101st round of the quarterly industrial outlook survey, manufacturing firms are exuding positive sentiments on production, order books, employment conditions and capacity utilisation for the second quarter (Q2) and the third quarter of FY24 (Q3:2023-24).
The central bank said in its report that robust agriculture production buoyed by expectation of a bountiful rabi harvest and resilience in allied sector activity were also brightening the outlook for rural demand.“Traction in construction activity is likely to be sustained as reflected in steady expansion in its proximate indicators: steel consumption and cement production,” the report said, adding that port cargo traffic and railway freight traffic movements also pointed to industrial activity picking up amidst gradual easing of input cost pressures.
Amidst this, RBI said private investment growth is also expected to strengthen with the production-linked incentive (PLI) scheme providing additional fillip. “Various other steps to enhance logistics efficiencies and cost competitiveness under the Prime Minister’s Gati Shakti and the National Logistics Policy (NLP) are expected to bring down logistics costs,” it added.