Amid presence of notable risks, the Indian economy is still set for a stable high growth phase and is in a robust position, according to RBI’s monetary policy committee member Shashanka Bhide. He asserted income growth, supporting domestic demand, and high investment spending in recent years are expected to sustain the momentum of domestic economic activity.
“In terms of growth momentum and inflation trajectories, the Indian economy is poised for a potentially stable high growth phase. It is also in a strong position in the context of significant risks that are also facing us,” stated Bhide.
The current official estimate of GDP growth for 2023-24 is 8.2 per cent, up from 7 per cent in the previous year. The Reserve Bank of India has projected a GDP growth rate of 7.2 per cent for FY25.
Bhide noted that the expected normal monsoon rainfall this year is a positive factor for growth and reducing food inflation. He mentioned improvement in global demand conditions is essential to spur external demand for goods and services. Sizable capital inflows supporting investment reflect both supply-side efficiencies and the high growth potential of the economy, both in terms of domestic demand and exports.
Addressing inflation concerns, Bhide highlighted the impact of risks from adverse weather events, global supply chain disruptions due to international conflicts, and the slow recovery of the global economy from recent high inflation periods. He stressed the importance of reducing food inflation, which has been high, averaging about 8 per cent during January-May 2024, while overall CPI-based inflation has moderated to below 5 per cent during March-May 2024.
“The prevailing policy rate combined with the gradual decline in inflation rate does mean higher real interest rates, but continued focus on keeping the inflation aligned with the target in a sustained way is important at this point to support growth as well,” he said.
In its latest bi-monthly review, the six-member monetary policy committee of the Reserve Bank of India left the key interest rate (repo rate) unchanged at 6.5 per cent for the eighth consecutive time. The RBI has projected Consumer Price Index (CPI)-based retail inflation at 4.5 per cent for FY25, with quarterly projections of 4.9 per cent in Q1 (April-June), 3.8 per cent in Q2, 4.6 per cent in Q3, and 4.5 per cent in Q4. Retail inflation stood at 4.75 per cent in May.
