Reserve Bank of India Governor Shaktikanta Das expects the Indian economy to grow 7 per cent in fiscal 2024-25 on the basis of the strong momentum of economic activity seen in India and sustain a 7 per cent and above rate for four consecutive years starting from FY 2021-22.
Even as the central bank makes a comprehensive assessment for the forthcoming February 2024 monetary policy, India’s real GDP is projected to grow by 7.3 per cent during 2023-24 according to the latest release by the National Statistical Office, Das said on Wednesday at an industry event in the World Economic Forum (WEF) Annual Meeting 2024 in Davos, expressing optimism over India remaining the fastest growing major economy with strong domestic demand conditions.
“India is now the fifth largest economy in the world. In fact, in purchasing power parity terms, India is already the third largest economy. The International Monetary Fund has projected that India’s contribution to world growth will rise from the current 16 per cent to 18 per cent by 2028,” Das told the international business community gathered at Davos, highlighting the achievement of India clocking a real gross domestic product (GDP) growth of 7.2 per cent in 2022-23 amidst an uncertain and challenging global macroeconomic environment. “The Indian economy presents a picture of confidence, positivity and optimism. Recent growth outturns have surprised most forecasts on the upside,” the RBI Governor noted.
Upholding the relative stability of the Indian rupee in the recent period as an outcome of the strength of the Indian economy, Das credited India’s macroeconomic fundamentals and improvements in India’s external position, particularly the significant moderation in the current account deficit (CAD) and revival of capital flows on the back of comfortable foreign exchange reserves as the factors contributing to the stability of the Indian currency. The RBI Governor also decried any move to “label the Indian rupee in any other manner by cherry-picking time periods for analysis” as inappropriate and grossly inconsistent with reality”.
The Indian rupee is a freely floating currency and its exchange rate is market determined. We agree that there should be flexibility in exchange rates, but it should not be a destabilising influence on the domestic economy of EMEs. Accordingly, multilateral institutions would do well to take a more nuanced and balanced view of the policy perspectives of the EMEs,” Das said.
The RBI Governor described the global macroeconomic front has been somewhat reassuring with inflation gradually descending closer to the target, even as growth has held up better than expected. While the odds of a soft landing have increased and financial conditions have eased, Das expressed concern over markets scaling new highs with the risk of running ahead of themselves amidst slowing global growth, a geopolitical situation that continues to be fragile with new flash points and fears of supply chain disruptions undermining global trade.
Drawing attention to India emerging from the recent spate of shocks with stronger fundamentals, Das underlined the positives driving the economic revival like easing inflation, stronger corporate balance sheets, a fiscal consolidation that is on course and with quality improved as well as eminently manageable external balances and strong forex reserves. Das attributed the upturn to the RBI’s appropriate policy rate and liquidity measures and structural reforms undertaken by the government over the last few years in the field of taxation, banking, ease of doing business, manufacturing, inflation management. “This coupled with digitalisation and a clear focus on physical and digital infrastructure have boosted the medium and long-term growth potential of the economy. These reforms are continuously helping the Indian businesses to improve productivity and adopt technology driven changes across the spectrum,” said Das.
The RBI Governor also observed that the manufacturing sector is undergoing a marked shift with support from the production linked incentives (PLIs) scheme, services sector, is fast adopting new technologies to improve delivery and reach, the non-banking financial companies (NBFC) sector is reflecting sound performance parameters, improved balance sheets of financial institutions are providing good support to durable and broad-based credit growth and stress tests undertaken to assess the resilience of banks under adverse stress scenarios show that their capital ratios will remain sufficiently above the regulatory minimum.