India’s economy is poised for a potentially stable high-growth phase, according to Shashanka Bhide, a member of the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC). Speaking on Sunday, Bhide emphasized that the Indian economy is in a robust position, even as it navigates significant risks both domestically and globally.
Bhide highlighted that the growth of income, which supports domestic demand, combined with high levels of investment spending in recent years, has bolstered the country’s production and supply capacities. This combination is expected to sustain the momentum of domestic economic activity, paving the way for stable and sustained growth.
“In terms of growth momentum and inflation trajectories, the Indian economy is poised for potentially a stable high growth phase,” Bhide told PTI. “It is also in a strong position in the context of significant risks that are also facing us.”
Optimistic Growth Projections
The current official estimate for India’s GDP growth in the fiscal year 2023-24 stands at 8.2%, up from 7% in the previous year. Earlier this month, the Reserve Bank of India projected the GDP growth rate for FY25 at 7.2%. These optimistic projections reflect the underlying strength of the Indian economy, despite the global economic uncertainties.
One of the significant positive factors for India’s growth outlook is the expected normal monsoon rainfall this year. Bhide noted that favorable monsoon conditions are crucial not only for agricultural productivity but also for controlling food inflation, which has been a concern in recent months.
Global and Domestic Dynamics
Bhide pointed out that improvements in global demand conditions are necessary to boost external demand for Indian goods and services. Sizable capital inflows, which support investment, further reflect the supply-side efficiencies and the high growth potential of the Indian economy. These factors are crucial for sustaining domestic demand and enhancing India’s export performance.
However, Bhide also acknowledged the risks to the economy, particularly from 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. These factors could impact India’s inflation trajectory and overall economic stability.
Inflation Concerns
Addressing concerns about inflation, Bhide emphasized that food inflation remains a significant challenge. While overall Consumer Price Index (CPI)-based inflation has moderated to below 5% during March-May 2024, food inflation has averaged around 8% during January-May 2024. The decline in food inflation is crucial for stabilizing the overall inflation rate and supporting long-term growth.
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“The prevailing policy rate combined with the gradual decline in inflation rate does mean higher real interest rates,” Bhide said. “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.”
In its latest bi-monthly review, the six-member MPC of the RBI decided to keep the key interest rate (repo rate) unchanged at 6.5% for the eighth consecutive time. The RBI has projected CPI-based retail inflation at 4.5% for FY25, with quarterly estimates ranging from 3.8% to 4.9%. Retail inflation in May stood at 4.75%.
Policy Outlook
The RBI, mandated to maintain inflation at 4% (with a margin of 2% on either side), primarily considers CPI when formulating its monetary policy. With inflation currently within the target range and growth projections remaining strong, the RBI’s monetary policy stance is expected to remain focused on supporting economic stability while keeping inflation under control.
Bhide’s optimistic outlook on India’s growth prospects underscores the resilience of the Indian economy in the face of global uncertainties. As the country navigates these challenges, the combination of strong domestic demand, robust investment activity, and favorable policy measures is expected to drive sustained economic growth in the coming years.
