The Reserve Bank of India's annual report highlights India's strong economic foundation, marked by enhanced external sector stability and solid corporate balance sheets. The focus on production-linked incentive (PLI) schemes is expected to boost job creation, fostering further economic growth.
India’s economy is on a solid trajectory, bolstered by strengthened external sector sustainability and robust corporate balance sheets. The Reserve Bank of India (RBI) highlighted these positive developments in its annual report released on Thursday, emphasizing the nation’s potential for job creation through production-linked incentive (PLI) schemes.
The RBI’s report presents an optimistic outlook for the world's fourth-largest economy, anticipating accelerated growth over the next decade. “The outlook for the Indian economy remains bright, underpinned by a sustained strengthening of macroeconomic fundamentals, robust financial and corporate sectors and a resilient external sector,” the central bank stated.
For the current fiscal year, the RBI projects India’s real GDP growth at an impressive 7%. This growth is expected to be fueled by an improved agricultural sector and heightened rural activity, thanks to the dissipation of the El Nino climate pattern and a forecast of an above-normal southwest monsoon.
In the 2023-24 fiscal year, the Indian economy grew by 7.6%, up from 7% in 2022-23. This robust performance was achieved despite challenges such as prolonged geopolitical tensions and volatile global financial markets.
India’s external sector has shown remarkable resilience, even amidst a global decline in exports. The current account deficit (CAD) narrowed significantly, decreasing to 1.2% of GDP during April-December 2023 from 2.6% the previous year. Additionally, foreign exchange reserves soared to an all-time high of $648.7 billion as of May 17, covering 11.4 months of imports and providing a strong buffer against external risks.
The government’s focus on capital expenditure and fiscal consolidation, combined with heightened consumer and business optimism, is expected to further boost investment and consumption demand. “Investment was the major driver of domestic demand, buoyed by government spending on infrastructure,” the RBI noted. Gross fixed capital formation rose dramatically to 10.2% in FY24 from 6.6% the previous year.
Investments under PLI schemes are anticipated to gain momentum, contributing to job creation, improving labor incomes, and enhancing domestic demand.
However, the economy must navigate increased global uncertainties and anticipated weaker global growth. “Geopolitical tensions, geoeconomic fragmentation, global financial market volatility, international commodity price movements and erratic weather developments pose downside risks to the growth outlook and upside risks to the inflation outlook,” the RBI cautioned.
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