“Investment demand appears to be resilient with the government’s infrastructure spending, an uptick in private capex, automation, digitalisation, and indigenisation providing a boost,” the Reserve Bank of India (RBI) said.
India’s gross domestic product (GDP) expanded 7.8% in the first quarter of FY24, through which the RBI expects the economy to grow 6.5%. An ET poll of economists has pegged the second-quarter growth rate at 6.7%. Several global economic think-tanks expect India to be the growth driver through this year and the next although global trade remains rather shaky, posing expansion challenges for several competing high-growth economies.
The RBI bulletin said the global economy is showing signs of slowing in the final quarter of 2023. By contrast, the pace of expansion in third-quarter GDP in India should be faster sequentially, with festival demand remaining “ebullient”. The central bank now expects the economy to grow 6.3% in the third quarter (OctoberDecember), from 6% it estimated in the October monetary policy.
The RBI said that in urban areas, consumer appliances are in strong demand through the season, especially in the mid and premium segments. About four-fifths of consumer durable purchases are backed by consumer financing schemes spiced up with attractive equated monthly instalment (EMI) offers.
The entry-level segment demand is, however, relatively subdued as ‘premiumisation’ shows clear signs of developing into a consistent trend.
The central bank noted that the balance sheets of banks and corporates are the healthiest in a long time and with the public investment push by the government, they create favourable conditions for a sustained revival in investment.
“The policy focus on strengthening macroeconomic fundamentals and continued structural reforms have made India distinct in terms of growth outcomes,” the RBI bulletin said.
While growth remains on track, inflation is on a path of moderation, although the consumer price gauge remains above the target, the RBI noted.
The monetary policy committee (MPC), in its October 2023 meeting, has projected consumer inflation at 5.4% for FY24, a moderation from 6.7% in FY23.
“Headline inflation, however, remains vulnerable to recurring and overlapping food price shocks,” the RBI said.
The tightening of financial conditions is a major risk to the global outlook, with the recent spike in bond yields indicative of further impending passthrough to borrowing costs, the RBI said.
Pointing to the intensifying geopolitical strife that has “flung a pall” of uncertainty around the global economy as it slows in the final quarter of 2023, the RBI said that Europe appears to be on the edge of a recession while China is stalling. The US has emerged as a key driver of global growth, although its economic outlook is more uncertain now than earlier.