India GDP to be well above 5.9% FY24 despite El-Nino, says RBI paper

India GDP to be well above 5.9% FY24 despite El-Nino, says RBI paper

Informist, Friday, Apr 21, 2023


NEW DELHI – India's economy is likely to grow "well above" 5.9% in the current financial year started Apr 1 despite the possible impact of El-Nino on growth, according to a Reserve Bank of India staff paper released today.


The RBI has projected GDP growth in 2023-24 (Apr-Mar) at 6.5%. 


"Even if El Nino impacts value added in agriculture, real GDP growth in India would be well above 5.9% projected in the IMF's WEO (World Economic Outlook)," said the paper titled "State of the Economy" in the central bank's bulletin for April.


The paper attributed its views to a host of central bank officials, including Deputy Governor Michael Patra, and said it does not necessarily reflect the views of the RBI.


Earlier this month, the India Meteorological Department has forecasted El-Nino to develop during July. However, its impact is likely to be partly offset by positive Indian Ocean Dipole and lower snow cover over the Northern Hemisphere and Eurasia during winter and spring. IMD sees southwest monsoon rainfall to be normal this year at 96% of the long-period average.


The RBI paper said 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," the paper said. "Rural demand indicators are steadily improving, brightened by expectations of a bumper rabi harvest."


For Jan-Mar of 2022-23, the RBI's nowcast model has projected a GDP growth rate of 5.4%. Data for GDP growth in the March quarter will be released in May.


On monetary policy, the paper said, "Substantial disinflation has been achieved, but the road to be travelled stretches ahead till inflation is at or close to the target of 4%."


The RBI has raised the policy repo rate by 250 basis points to 6.50% since May in a bid to tame inflationary pressures. "At this point, the level of the policy rate at 6.5% is 1.25 times the level of inflation four quarters ahead (5.2% in Q4 of 2023-24 as projected by the MPC)," the paper said.


The RBI has projected CPI inflation to average at 5.2% in 2023-24. It has projected CPI inflation to average at 5.1% in Apr-Jun and at 5.4% in both Jul-Sep and Oct-Dec.


"The promontory that monetary policy in India has achieved uptil now provides just enough headroom to weigh the impact of actions taken so far and to strategise the appropriate response should actual inflation prints deviate from the projected path," the paper said.


"Concomitantly, we need to evaluate the effects on underlying economic activity as past monetary policy actions work their way through the well-known lags associated with the implementation of monetary policy," it said.  End


Reported by Priyansh Verma

Edited by Tanima Banerjee



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