Mumbai: The pace of global growth may slow further in 2024 while disinflation at varying pace in different geographies may pave the way for interest rate reductions. However in India, the broad-based strengthening of economic activity that is under way will likely be sustained by easing input costs and corporate profitability, said the Reserve Bank of India (RBI) in its December 2023 Bulletin released on Wednesday.
The central bank said that it expects inflation in India to ease to 4.6 per cent in the first three quarters of 2024-25. “The retail CPI inflation which rose to 5.6 per cent in November as the recurrence of food price spikes punctured a brief respite in September and October, but it is expected to ease to 4.6 per cent in the first three quarters of 2024-25.”
It said that the real economy’s enduring strength has lifted the domestic financial markets.
A study to identify ‘Staglation Risk’ (characterised by periods of recession coupled with high inflation) in India found that the risk of it is lower due to favourable macroeconomic conditions. The study undertaken by RBI economists Deba Prasad Rath, Silu Muduli and Himani Shekhar found that the chance of stagflation right now is pretty low, at just one percent.
On India's Gross Domestic Product (GDP) growth, the RBI bulletin said real growth for 2023-24 is projected at 7 per cent with Q3 at 6.5 per cent and Q4 at 6 per cent. Real GDP growth for Q1 of 2024-25 is projected at 6.7 per cent, Q2 at 6.5 per cent, and Q3 at 6.4 per cent.
However the RBI article warned that if inflation is not brought back to the (4 per cent) target and tethered there, there is a strong likelihood that growth may falter.
The article said that the objective of aligning inflation with the target on a durable basis is far from assured. Households’ inflation expectations are still not settled, business and consumer confidence in the inflation outlook is yet to turn optimistic.
“On a real-time basis, inflation is hurting discretionary consumer spending and this, in turn, is holding back top line growth of manufacturing companies as well as their capex. If inflation is not brought back to the target and tethered there, there is a strong likelihood that growth may falter,”said the article.
The RBI Bulletin is a monthly publication that offers insights into the developments in domestic and global economies but doesn’t represent the views of the central bank.
Meanwhile the Bulletin stated that the UPI-based transactions touched a total value of Rs 17.4 lakh crore in December 2023. "Merchant transactions on the UPI platform, however, recorded a 74 percent jump (YoY), totalling over 6.5 billion transactions," said the RBI bulletin.
