RBI annual report: Indian economy likely to grow at 6.5% as inflation cools off

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India’s growth momentum is likely to sustain in the financial year 2023-24 amid easing inflationary pressures, the Reserve Bank of India said in its annual report released on May 30, projecting an economic growth rate of 6.5 percent for FY24.

“On the back of sound macroeconomic policies, softer commodity prices, a robust financial sector, a healthy corporate sector, continued fiscal policy thrust on quality of government expenditure, and new growth opportunities stemming from global realignment of supply chains, India’s growth momentum is likely to be sustained in 2023-24 in an atmosphere of easing inflationary pressures,” the central bank said.

However, slowing global growth, protracted geopolitical tensions and a possible upsurge in financial market volatility following new stress events in the global financial system could pose downside risks to growth.

“It is important, therefore, to sustain structural reforms to improve India’s medium-term growth potential,” it said.

Risks to inflation have eased with downward corrections in global commodity and food prices and easing of the pass-through from high input cost pressures of last year, it added.

The central bank raising the policy repo rate by 250 basis points over the last year will also steer the disinflationary process, along with supply side measures to address transient demand-supply mismatch due to food and energy shocks.

With a stable exchange rate and a normal monsoon – unless an El Niño event strikes – the inflation trajectory is expected to move down over 2023-24, with the headline inflation edging down to 5.2 percent from the average level of 6.7 percent recorded last year, the RBI said.

“Monetary policy remains focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth,” it added.

On the external sector, the current account deficit should remain moderate, drawing strength from robust services exports and the positive impact of moderation in commodity prices of imports.

However, foreign portfolio investment flows may remain volatile with global uncertainties persisting, while foreign direct investment inflows should be buoyant, the RBI said.