Reserve Bank of India (RBI) on Thursday said that with retail inflation falling below the 6 per cent upper band in recent months, the first milestone of India's monetary policy committee (MPC) is passed. Reserve Bank of India (RBI) in its monthly bulletin said that fiscal consolidation is underway at central and sub-national levels, graduating to nurture the pace of the economic recovery.
Retail inflation started dipping below the top bound of the 6 per cent band in the most recent figures after remaining over the 2 to 6 per cent band for the majority of 2022.
RBI said, “turning to early developments in 2023, macroeconomic stability is getting further entrenched. Recent data arrivals indicate that the first milestone of monetary policy is being passed – bringing inflation into the tolerance band. The objective during 2023 is to tether inflation therein so that it aligns with the target by 2024 – the second milestone.”
Adding that indicators suggest that the current account deficit is on course to narrow through the rest of 2022 and 2023.
The RBI bulletin provides some insights into the thinking on key economic and policymaking issues.
In order to reduce inflation, RBI’s monetary policy committee (MPC) increased the benchmark repo rate by 225 basis points since May of last year. Going forward, it is anticipated that the MPC might pause.
According to the latest data released on January 12, India's headline retail inflation rate decreased to a one-year low of 5.72 per cent in December from 5.88 per cent the previous month.
On the question of what does 2023 hold for India? RBI in its bulletin said that the prospect of India as a bright spot amidst 2023’s encircling gloom is burnished by most recent history and current developments. By cross-country standards, the Indian economy exhibited resilience through 2022 in the face of the triad of shocks – war; monetary policy tightening; and recurring waves of the pandemic.
An important factor in the overall outcome has been the measured responses of monetary and fiscal policies in sharp contrast to the aggressive tightening worldwide. The year 2023-24 may see a deceleration in real GDP growth from 7 per cent in 2022-23 (NSO estimates) to 6.5 per cent as projected in the RBI’s monetary policy report of September 2022, RBI said.
At current prices and exchange rates, therefore, India will be a $3.7 trillion economy in 2023, maintaining its lead over the UK as the fifth largest economy in the world, RBI further added.
RBI said, “according to the IMF’s calculations, India will move into fourth place in 2025 and into the third place in 2027 as a $5.4 trillion economy.”
Adding that even diehard disparagers acknowledge that India has a compelling story - a vibrant IT-services industry, a burgeoning domestic tech economy, an increasingly attractive location for global manufacturers, and strong economic growth.
India is onshoring too. In the process, it is striving to build a global manufacturing hub and a preferred habitat for companies to shift their production bases, the central bank said.
RBI said, “2023 may well be the opening ajar of a window in which India’s time on the world stage is arriving. In April 2023, India’s population will be the largest in the world, projected at 1.4 billion.”
A sixth of the increase of the world’s population of working age (15-64) people between 2023 and 2050 will be Indians. Coupled with a median age of 28, this is India’s chance to seize the demographic dividend and herald its emergence as an economic powerhouse of the future, It further added.