“Although too early to tell, most recent data arrivals suggest that the multilateral institutions – the IMF, in particular – might encounter forecast errors, with actual outcomes surprising them positively,” RBI said in its latest ‘State of the Economy‘ report.
The IMF recently lowered its 2023 growth forecast for India to 5.9 per cent from 6.1 per cent citing slowness of domestic consumption and challenging external condition. In its annual World Economic Outlook, IMF also lowered the forecast for 2024-25 fiscal (April 2024 to March 2025) to 6.3 per cent from the 6.8 per cent it had predicted in January this year.
IMF growth forecast is lower than projections by the Reserve Bank of India (RBI). RBI sees a 7 per cent GDP growth in 2022-23 and a 6.4 per cent in the current fiscal that started on April 1.
However, the RBI claimed that “India is expected to be among the fastest growing major economies of the world, accounting for 15 per cent of global growth – the second largest contribution, and higher than that of the US and EU put together.”
The central bank asserted that aggregate demand conditions in India have remained resilient so far. “Urban consumption demand has risen robustly, with the rebound in contact-intensive services providing a strong upside. Rural demand indicators are steadily improving, brightened by expectations of a bumper rabi harvest. Damage to standing crops due to unseasonal rains and hailstorms appears contained.”
However, the RBI has acknowledged that the weather phenomenon El Nino is a risk to growth. “The setting in of El Nino conditions in June and developing into a strong event as predicted by the US National Oceanic and Atmospheric Administration is a downside risk for the prospects for agriculture.””However, the Indian Ocean Dipole (IOD), which is the difference in sea surface temperature between the western pole in the Arabian Sea and an eastern pole south of Indonesia is currently neutral and forecast to turn positive. Its infl uence on rainfall variability in the region is likely to be benefi cial for south-west monsoon (SWM) precipitation,” the report added.
According to the “State of the Economy” report, investment activity in India is exhibiting buoyancy on the back of strong composite purchasing managers indices (PMIs).
“The total flow of resources to the commercial sector, including bank credit, has increased by 37 per cent up to March 2023. Merchandise exports have risen by 6 per cent in 2022-23 and services exports are booming. Taking all these factors into consideration, the risks are evenly balanced around real GDP growth for 2023-24 at 6.5 per cent as projected by the monetary policy committee (MPC) of the Reserve Bank of India (RBI). Even if El Nino impacts value added in agriculture, real GDP growth in India would be well above 5.9 per cent projected in the IMF’s WEO,” RBI said.
According to the RBI, global economic conditions are beset by heightened uncertainty as financial conditions remain volatile and financial markets are on edge. In India, aggregate demand conditions remain resilient, supported by a rebound in contact-intensive services. Expectations of a bumper rabi harvest, the fiscal thrust on infrastructure, and the revival in corporate investment in select sectors augur well for the economy.
On inflation, the report stated that in response to monetary policy actions and supply side measures, headline CPI inflation has gradually declined from its peak of 7.8 per cent in April 2022 to 5.7 per cent in March 2023 and is projected to ease further to 5.2 per cent in Q4: 2023-24.
