RBI Annual Report: India's macroeconomic resilience key in challenging global scenario
The Reserve Bank of India (RBI) released its annual report for 2022-23 on Tuesday, highlighting the domestic economic challenges posed by a lackluster global outlook.
Despite these challenges, the report emphasizes that India is positioned advantageously in the current fiscal year due to resilient domestic macroeconomic and financial conditions, expected dividends from past reforms, and new growth opportunities arising from global geo-economic shifts.
According to the report, the RBI projects a GDP growth rate of 6.5 percent for the current fiscal year. This optimistic outlook is based on various factors, including softer global commodity and food prices, favorable prospects for the rabi crop, sustained buoyancy in contact-intensive services, the government's continued emphasis on capital expenditure, higher capacity utilization in manufacturing, double-digit credit growth, receding impact of high inflation on purchasing power, and growing optimism among businesses and consumers.
Considering these factors, the report suggests that India's real GDP growth for 2023-24 is projected to reach 6.5 percent, with risks evenly balanced.
Discussing inflation, the RBI notes that risks have moderated due to downward corrections in global commodity and food prices, as well as a decrease in the pass-through effect of high input costs from the previous year. As a result, the report anticipates a downward trajectory for inflation over the course of 2023-24.
With a stable exchange rate and a normal monsoon season, barring any unexpected El Nino event, headline inflation is expected to decrease to 5.2 percent from the average level of 6.7 percent recorded last year.
In terms of monetary policy, the RBI remains committed to gradually withdrawing accommodative measures to ensure that inflation aligns with the target while supporting growth.
The report expresses optimism about investment activity in the current fiscal year, citing the realignment of global supply chains, the transition to green energy, and ongoing technological advancements as factors that create a congenial environment for increased investment and productivity.
Addressing the resilience of financial institutions, the RBI acknowledges the recent financial sector turmoil in the United States and Europe and emphasizes the need to reassess risks to financial stability. While Indian banks and non-banking financial intermediaries are considered sound and resilient, stress testing for potential shocks is recommended.
The report advises regular review and strengthening of capital buffers and liquidity positions. It also anticipates the announcement of policy measures, such as guidelines on expected loss-based provisioning during 2023-24. Furthermore, the RBI aims to finalize guidelines on the securitization of stressed assets and conduct a comprehensive review of the prudential framework to further strengthen the resolution ecosystem.
The RBI acknowledges that the Indian economy faced several shocks in the previous fiscal year. However, it emphasizes that with sound macroeconomic policies, favorable commodity prices, a robust financial sector, a healthy corporate sector, continued government focus on quality expenditure, and new growth opportunities stemming from the global realignment of supply chains, India's growth momentum is likely to be sustained in 2023-24, amidst easing inflationary pressures.
Nevertheless, the report cautions that slowing global growth, protracted geopolitical tensions, and potential financial market volatility could pose downside risks to India's growth trajectory. Therefore, sustaining structural reforms remains essential to improving India's medium-term growth potential.(Edited)