RBI Forecasts Sustained Growth Momentum for India in 2023-24 amid Easing Inflation

The Reserve Bank of India (RBI) has expressed confidence in India's economic growth trajectory for the fiscal year 2023-24, citing favorable macroeconomic policies, softer commodity prices, a robust financial sector, and a healthy corporate sector. In its annual report submitted to the central government, the RBI highlighted the potential for sustained growth amidst a global realignment of supply chains.

The central bank acknowledged certain downside risks to growth, including slowing global growth, protracted geopolitical tensions, and potential financial market volatility triggered by stress events in the global financial system. To mitigate these risks and ensure India's medium-term growth potential, the RBI emphasized the need for sustained structural reforms. According to the International Monetary Fund's (IMF) World Economic Outlook, global growth is projected to slow down in 2023 and remain subdued in the medium run. The RBI cited IMF estimates, stating that global growth is expected to reach 2.8% in 2023, followed by a medium-term growth plateau at 3%.

Globally, disinflation efforts are anticipated to contribute to a decline in headline inflation among advanced economies (AEs) from 7.3% to 4.7% in 2023. In emerging markets and developing economies (EMDEs), inflation is predicted to decrease from 9.8% to 8.6%. However, the RBI cautioned that progress might be gradual due to persistent upside pressures on inflation.

The RBI's report indicated that India's inflation trajectory is expected to move downward in 2023-24, due to a stable exchange rate and a normal monsoon season unless affected by an El Nino event. Headline inflation is projected to decrease from an average of 6.7% last year to 5.2%. The central bank reiterated its commitment to monetary policy aimed at gradually withdrawing accommodation while aligning inflation with the target and supporting growth.

In terms of consumer confidence, the RBI's consumer confidence survey conducted in March 2023 revealed improved perceptions of the current economic situation and household income. Future expectations also remained positive, indicating a favorable outlook. Furthermore, the RBI's report highlighted the anticipated increase in households' spending on non-essential items over the coming year. The quarterly industrial outlook survey indicated positive sentiments among manufacturing firms regarding production, order books, employment conditions, and capacity utilization for the second and third quarters of FY24.

The RBI also underscored the positive outlook for rural demand, buoyed by robust agriculture production and resilience in the allied sector. The report noted sustained traction in construction activity, as evidenced by the steady expansion in steel consumption, cement production, port cargo traffic, and railway freight traffic movements. These indicators pointed to a gradual recovery in industrial activity amid easing input cost pressures.

Additionally, the RBI expects private investment growth to strengthen, supported by the production-linked incentive (PLI) scheme. The central bank also highlighted other measures, such as the Prime Minister's Gati Shakti and the National Logistics Policy (NLP), aimed at enhancing logistics efficiencies and cost competitiveness, which are anticipated to reduce logistics costs.