Indian economy is poised for potentially a stable high growth phase and it is also in a strong position in the context of significant risks that the country is facing, RBI’s monetary policy committee member Shashanka Bhide said on Sunday. Bhide further said with the growth of income that would support domestic demand and additions to production or supply capacity reflected by high levels of investment spending in the last couple of years, domestic economic activity is expected to sustain its momentum.
“In terms of growth momentum and inflation trajectories Indian economy is poised for potentially a stable high growth phase.
“It is also in a strong position in the context of significant risks that are also facing us,” he told PTI.
The current official estimate of GDP growth in 2023-24 is 8.2 per cent, accelerating from 7 per cent in the preceding year. Earlier this month, the Reserve Bank of India pegged the GDP growth rate for FY25 at 7.2 per cent.
Bhide noted that the monsoon rainfall, which is expected to be normal this year, is a significant positive factor for growth as well as bringing down food inflation.
While noting that improvement in global demand conditions are necessary to spur external demand for goods and services, he said sizable capital inflows supporting investment, reflect both the supply side efficiencies and high growth potential of the economy both in terms of domestic demand as well as India’s exports.
Responding to a question on inflation, Bhide said the concerns are mainly in terms of the impact of risks from any adverse weather and climate events, disruptions in global supply chains due to international conflicts and the slow recovery of the global economy from the recent high inflation period.
Internal members maintain hawkish stance on inflation, with Governor Das cautioning against hasty actions for fear of worsening the situation
“Our own overall CPI inflation is marked by high levels of food inflation and a decline in this component of the overall inflation is crucial going forward,” he opined.
Bhide said while food inflation is at a high level, averaging about 8 per cent during Jan-May 2024, the overall CPI-based inflation has moderated to below 5 per cent during March-May 2024.
“The prevailing policy rate combined with the gradual decline in inflation rate does mean higher real interest rates, but continued focus on keeping the inflation aligned with the target in a sustained way is important at this point to support growth as well,” he said.
In its latest bi-monthly review earlier this month, the six-member monetary policy committee (MPC) of Reserve Bank of India left the key interest rate (repo rate) unchanged for the eighth time in a row at 6.5 per cent.
The RBI has projected Consumer Price Index (CPI)-based retail inflation at 4.5 per cent for FY25 with 4.9 per cent in Q1 (April-June), 3.8 per cent in Q2, 4.6 per cent in Q3, and 4.5 per cent in Q4.
Ashima Goyal, an external member of the Monetary Policy Committee, emphasized the potential for India’s economy to grow at 8% if the nominal repo rate falls in line with declining inflation. The Reserve Bank of India has projected a GDP growth of 7.2% for the current fiscal year.
Retail inflation was 4.75 per cent in May.
The RBI, which has been mandated to ensure inflation remains at 4 per cent (with margin of 2 per cent on either side), mainly factors in CPI while arriving at its monetary policy.
