The Indian economy has remained remarkably resilient over the last three years, despite the uncertain global backdrop. No doubt, the spill overs from global shocks, which are impacting the supply chains resulting in a slowdown in growth and elevated commodity prices, is a matter of concern. Nevertheless, our economy has done much better than many large economies, driven by robust domestic consumption, digitisation initiatives, food security and robust regulatory system for the financial sector. A conducive domestic policy environment along with government’s focus on structural reforms have kept India’s economic activity robust.
The current growth momentum in the economy remains strong, as confirmed by several key macroeconomic indicators such as GST revenue collection, which has touched the highest ever at 1.87 lakh crore in April 2023, robust automobile sales, impressive air passenger traffic, high manufacturing PMI, reflecting an improvement in industrial and commercial activities. The financial sector too has remained robust with bank credit growing in double-digits despite monetary tightening by the RBI.
Encouragingly, inflation, which had emerged as a big challenge post the war in Ukraine, has now moved within the RBI’s target band of 2-6 per cent, with the CPI print at 5.7 per cent for March 2023 and further moderation expected in the months ahead. The average CPI inflation for FY23 came at 6.6 per cent compared to 5.5 per cent last year. In the wake of risks to growth amidst some positive signs on the inflationary front, the RBI, in its latest monetary on 6th April 2023, decided to keep the policy repo rate unchanged at 6.5 per cent and let the lagged impact of the cumulative hike of 250 bps, effected so far, to work through the system.
It is fair to say that the easing of international commodity prices notwithstanding tighter supply by OPEC+, promptness of measures taken by the government and the RBI have helped to rein in domestic inflation. Further, inflation expectations also appear to be anchoring as recorded in surveys of households and businesses.
However, the recent banking turmoil in the advanced nations has clouded the global economic outlook, prompting many central banks, including the RBI, to adopt a wait and watch approach before making changes to its monetary policy. Heightened global financial market volatility and consequent implications on commodity prices and currencies continue to linger, which can have a bearing on imported inflation.
Further risks to the domestic growth outlook can also emerge from the possibility of El Nino, even while monsoon has been forecasted as ‘normal’ this year. We need to be cautious of the geopolitical developments and the impact of muted global growth on the domestic economy.
While the aforementioned factors could lead to some moderation in growth in the current fiscal, there is optimism that India’s increased macro stability will help sustain the growth momentum going forward.
This article was first published is the May 2023 edition of CII ARTHA.