India should sustain growth momentum, secure growth at 7%, inflation at 4%
Mumbai: In an environment of macroeconomic stability, India’s objective for 2024-2025 should be to sustain the growth momentum by securing real GDP growth of at least 7 per cent and bringing down inflation to 4 per cent, the Reserve Bank of India (RBI) said in its January Bulletin released on Thursday.
India is set to be the fastest-growing economy in the G20 grouping of large nations. After rapid economic growth of 7.2 per cent in the 2022-23 fiscal year, India’s National Statistical Office has predicted an annual growth of 7.3 per cent for the current fiscal year ending in March. The RBI's projection stands at 7 per cent, World Bank at 6.3 per cent.
“In India, potential output is picking up with actual output running above it, although the gap is moderate. In 2024-25, the objective should be to sustain this momentum in an environment of macroeconomic stability,” an article authored by a team headed by RBI deputy governor Michael Patra said in the Bulletin.
“Accordingly, inflation needs to align with the target by the second quarter of the year, as projected, and get anchored there.”Balance sheets of financial institutions need to be strengthened and asset quality improved even further. The ongoing consolidation of fiscal and external balances needs to continue. The gains of the transformative technological change that is underway must be harnessed for inclusive and participative growth in a sound risk-free environment.
The economists said that the thrust to investment from government capex must be partnered and even led by the corporate sector, supplemented by foreign direct investment.
The article quoted the RBI governor, Shaktikanta Das,” New opportunities are knocking at our doors. It is for us to capitalise on them. There has to be a greater focus on investment in capacity building, skilling of human resources and adoption of newer technology by all players. The international confidence in India’s prospects is at a new high; it is an opportune time to make this India’s moment and work towards strong, sustainable and inclusive growth.”
The pandemic and war in Ukraine impacted food prices which had an overbearing influence on headline inflation in India. Widely regarded as transient, these shocks appear to have imparted volatility and persistence to food inflation which averaged 6.7 per cent during April 2022 to November 2023.
Food has a weight of 45.9 per cent in the consumer price index (CPI) but its contribution to overall inflation has increased from 48 per cent in April 2022 to 67 per cent in November 2023. The RBI said that the rising vulnerability of food prices to climate change and weaponisation of food as a consequence of geopolitical conflict and restrictive trade practices is resulting in large spillovers propagating into nonfood inflation across geographies. These forces are causing headline inflation in India to diverge, often persistently, from its target of 4 per cent said the article
