RBI does not expect India to slowdown like global economy in FY23, raises concern on inflation

The Reserve Bank of India (RBI) does not expect India to slow down in the fiscal year FY23, unlike the global economy. It believes the county will maintain its pace of expansion by end of the financial year. Hence, RBI is optimistic about India. However, the central bank did raise its concern about inflation, especially core inflation.

In its March 2023 bulletin, RBI said, "unlike the global economy, India would not slow down – it would maintain the pace of expansion achieved in 2022-23."

It added, "we remain optimistic about India, whatever the odds."

According to RBI's bulletin, even as global growth is set to slow down or even enter a recession in 2023 as global financial markets wager, India has emerged from the pandemic years stronger than initially thought, with a steady gathering momentum since the second quarter of the current financial year.

RBI said, "year-on-year growth rates do not reflect this pick-up of pace because by construction they are saddled with statistical base effects, and instead suggest a sequential slowing down through successive quarters of 2022-23 to an unsuspecting reader."

Additionally, RBI highlighted that Indian economy has remained resilient amidst high tides of uncertainty. The second advance estimates (SAE) of national income released by the National Statistical Offi ce (NSO) on February 28, 2023 indicate that the recovery from the pandemic was stronger than earlier believed, led by private consumption and supported by a rebound in government consumption during 2021-22.

Also, it said, "the pickup in export growth and a large easing of import growth reduced the drag from net exports. On the supply side, the improvement was more broad-based, led by services and followed by industry."

India's GDP which recorded a growth of 4.4% in the Q3 of the current fiscal, is expected to rise to 7% for the overall FY23. In FY22, the economy posted a growth of 9.1%.

At present, the available forecasts of India’s real GDP growth for 2023-24, including those of the RBI, settle between 6% and 6.5%.

But RBI continues to flag concerns related to consumer price index (CPI) inflation.

In its State of Economy topic, RBI said, "consumer price inflation remains high and core inflation continues to defy the distinct softening of input costs."

As per RBI, headline inflation eased across most AEs and EMEs; nonetheless, it remains elevated and well above targets in most economies. But elevated core inflation remains a major concern in most economies.

India's CPI inflation eased slightly at 6.44% in February 2023, however, was higher than expected. Also, this inflation reading would be the second consecutive month where it has stayed above RBI's upper tolerance limit of 6%.