A Reserve Bank of India logo at RBI headquarters in Mumbai. File | Photo credit: The Hindu
Even though the global economy is set to slow down or even enter recession in 2023, as financial markets around the world face heightened uncertainty, India’s economy is steadily gaining momentum, wrote Reserve Bank of India (RBI) officials led by Deputy Governor Michael D. Patra. in a March RBI Bulletin article.
India has emerged from the pandemic years stronger than initially thought, they claimed.
“Unlike the global economy, India would not slow down – it would maintain the pace of expansion achieved in 2022-23,” the officials wrote, adding, “We remain bullish on India regardless of the odds”.
Officials observed that the release of late February data from the National Statistics Office (NSO) indicated that the Indian economy was inherently better positioned than many parts of the world to face a difficult year, mainly due to its resilience. demonstrated and its dependence on domestic markets. Drivers.
On the supply side, agriculture was seasonally up, they wrote, with manufacturing also emerging from a contraction and services maintaining momentum.
However, they flagged price stability as a concern, including the persistent stickiness of underlying inflation.
“Consumer price inflation remains elevated and core inflation continues to defy the sharp easing in input costs,” they noted.
Noting that the collapse of banks in the United States during the first half of March was reverberating through global financial markets, with the likely direct impact of the collapse on economic activity appearing limited at present, they said markets were bracing for a tightening in financial conditions, however, “which could present a trade-off between financial stability concerns and the conduct of disinflationary monetary policy.”
“The fear slowly returns; After remaining tepid for months, the VIX – Wall Street’s fear gauge – jumped 17.7% as of March 17 from its level at the end of December 2022. Yield curves are in deep inversion and the he future looks bleaker than it was just a few weeks ago in early February,” they wrote.
Stating that currently available forecasts of India’s real GDP growth for 2023-24, including those of the RBI, were between 6.0 and 6.5%, they said: “But, as we wrote in last month’s edition of the State of the Economy that if at least 50% of the ₹35,000 crore of tax relief offered in the Union budget is used by taxpayers for the consumption and add to private final consumption expenditure – a component of GDP? »
“This is plausible because the proportion of an extra rupee of income that is spent on consumption by households in India is estimated to be ₹0.54 (54 paise). And what if even a third of the additional allocation of ₹3.2 lakh crore budgeted for actual capital expenditure adds to gross fixed capital formation, another component of GDP?”
India’s real GDP could rise from ₹159.7 lakh crore in 2022-23 to not only ₹169.7 lakh crore in 2023-24, as currently projected, but to ₹170.9 lakh crore, have they assumed.