Indian economy needs to navigate challenges from AI, climate shocks: RBI annual report

Mumbai: The Indian economy would need to navigate some of the challenges arising out of the rapid adoption of artificial intelligence and machine learning technologies, and recurrent climate shocks, even as it is poised for stronger growth over the next decade, the Reserve Bank of India (RBI) said in its annual report for FY24.

The central bank said that the growth in the next decade would come in the backdrop of macroeconomic and financial stability as India uses its demographic dividend and make the most of competitive advantages.

“…the Indian economy is navigating the drag from an adverse global macroeconomic and financial environment,” it said in the report released on Thursday.

However, real gross domestic product (GDP) growth is robust on the back of solid investment demand supported by healthy balance sheets of banks and corporates. It also said that the growth is backed by the government’s focus on capital expenditure, and prudent monetary, regulatory and fiscal policies.

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It said that even against the backdrop of subdued global economic activity and several headwinds, the Indian economy expanded at a robust pace in FY24, with real GDP growth accelerating to 7.6% (as per second advance estimate), from 7% in the previous year – the third successive year of 7% or above growth.

“The domestic economy exhibited robust growth in 2023-24, underpinned by strong investment activity, amidst subdued external demand,” it said.

The report also pointed out that inflationary pressures have moderated, although unevenly during FY24. This, RBI said, reflects the combined impact of calibrated monetary tightening, easing of input cost pressures and supply management measures. 

Headline inflation softened to 5.4% during 2023-24 from 6.7%, driven by the fall in core inflation – consumer price index or CPI excluding food and fuel – to 4.3% from 6.1% in the same period.

“As headline inflation eases towards the target, it will spur consumption demand especially in rural areas,” it said.

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According to RBI, the external sector’s strength and buffers through foreign exchange reserves will insulate the local economic activity from global spillovers.

“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,” it said.