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RBI projects economic growth at 6.4% for next fiscal

The Reserve Bank of India (RBI) on Tuesday projected India’s economic growth to slow down to 6.4% in FY24 from 7% in the current fiscal, citing risks from geopolitical tension and tightening global financial condition.

Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the central bank’s internal survey says manufacturing, services, and infrastructure sector firms are optimistic about the business outlook.

However, protracted geopolitical tension, tightening global financial conditions, and external demands continue as downside risks to the domestic outlook, he noted.

“The real GDP growth for 2023-24 is projected at 6.4% ,” Das said.

In 2023-24, the growth in the June and September quarter is projected at 7.8% and 6.2%, respectively. In the December and March quarter, the GDP growth is estimated at 6% and 5.8%, respectively.

“Monetary policy will continue to be agile and alert to effectively address challenges to the economy,” Das said.

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Several economists and rating agencies have projected India’s real GDP growth to slow to between 6-6.5% in the next fiscal.

Further, RBI projected retail inflation to ease to 5.3% in the next fiscal from 6.5% this year on assumptions of lower imported inflation, although core inflation remains sticky.

The RBI’s inflation outlook for the current fiscal has improved from 6.8% projected earlier to 6.5% on the back of steeper than expected decline in vegetable prices and the Indian basket of crude at $95 a barrel.

“Looking ahead, while inflation is expected to moderate in 2023-24, it is likely to rule above the 4% target. The outlook is clouded by continuing uncertainties from geopolitical tensions, global financial market volatility, rising non-oil commodity prices, and volatile crude oil prices. At the same time, economic activity in India is expected to hold up well,” the governor said.

The low volatility of the Indian rupee relative to peer currencies limits the impact of imported price pressures and other global spillovers.

“…assuming an average crude oil price (Indian basket) of $95 per barrel, inflation is projected at 6.5% in 2022-23, with Q4 at 5.7%. On the assumption of a normal monsoon, CPI inflation is projected at 5.3% for 2023-24, with Q1 at 5%, Q2 at 5.4%, Q3 at 5.4%, and Q4 at 5.6%. The risks are evenly balanced,” Das said.

Consumer price index-based (CPI) inflation in India moved below the upper tolerance level of 6% during November-December 2022, driven by a strong decline in the prices of vegetables. Core inflation, however, remains sticky, the RBI said.

Edited by Suman Singh

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