scorecardRBI revises India’s FY24 growth outlook, expects softer inflation on the back of lower commodity prices
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RBI revises India’s FY24 growth outlook, expects softer inflation on the back of lower commodity prices

RBI revises India’s FY24 growth outlook, expects softer inflation on the back of lower commodity prices
Finance4 min read
Representational image    Canva
  • The Reserve Bank of India on Thursday made a moderate revision in its growth and inflation outlook for FY24.
  • Citing robust urban demand and a healthy growth in rural demand during Q4, RBI increased the FY24 GDP growth outlook to 6.5% from 6.4% earlier.
  • RBI has projected FY24 inflation at 5.2% from 5.3% earlier, citing robust rabi harvest, easing commodity prices and expectations of a normal monsoon.
The Reserve Bank of India on Thursday revised India’s economic growth outlook upwards, expecting a real gross domestic product (GDP) growth rate of 6.5% in FY24, crediting it to a resilient economy in Q4 FY23. This is a 10 basis point increase from the previous Monetary Policy Committee (MPC) announcement in February, which pegged FY24 GDP growth at 6.4%.

RBI governor Shaktikanta Das announced the upward revision in the GDP growth outlook during the MPC announcement today while keeping the repo rate unchanged at 6.5%.

Das said that the Indian economy is projected to grow at 7.8% in Q1 FY24, and subsequently at 6.2%, 6.1% and 5.9% in the second, third and fourth quarters, respectively.

India GDP FY24 RBI projection April 2023.
RBI's FY24 GDP growth projection      Business Insider India

“While the numbers may not really be significant, the messaging is subtle that the MPC expects the economy to fare well on both counts this year,” said Madan Sabnavis, chief economist, Bank of Baroda.

Resilient economy, healthy growth in rural demand

Crediting the upward revision to a resilient economic performance in Q4, Das said that the overall demand scenario was robust in Q4 – while urban demand remained robust, rural demand had also seen a healthy growth in consumer non-durables, tractors and two-wheeler sales.

“Looking ahead, the higher rabi production has brightened the prospects for the agriculture sector and rural demand. The steady growth in contact-intensive services should be positive for urban demand,” Das said.

According to the analysts at ICICI Securities, too, high frequency indicators like GST collections, auto sales, air traffic, power demand, among other factors suggest that data does not corroborate the thesis of a slowdown in India. In contrast, data does suggest a slowdown in developed markets, the brokerage said.

Echoing similar sentiments, Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, said, “The RBI remains comfortably on the growth front, for now. We believe the risks to this outlook are skewed towards the downside.”

With that being said, some analysts say RBI’s 6.5% growth projections could be slightly on the optimistic side. It is worth noting that the World Bank revised India’s FY24 growth projections slightly downwards to 6.3% from 6.6% earlier.

“The 6.5% GDP growth rate appears to be on the optimistic side when seen in the context of a slowing global economy,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

The Asian Development Bank too expects India’s growth to moderate to 6.4% in FY24 from 6.8% in FY23.

Das, too, hedged growth expectations by stating that there are additional downside risks from financial stability concerns, alluding to the banking sector crisis in the US and Europe. For context, the International Monetary Fund, too, has trimmed the 2023 growth outlook for the global economy to 2.9% from 3.4% in 2022.

Inflation expected to soften, but battle not over yet

In a similar vein, RBI has trimmed its consumer price index (CPI) inflation expectations for FY24 marginally from 5.3% earlier to 5.2% now.

CPI inflation FY24 RBI projection April 2023.
RBI's FY24 CPI inflation projection      Business Insider India

However, RBI’s battle against inflation is not over yet – in fact, Das said that the MPC will step in if the need arises.

“The war against inflation will continue until we see a durable decline in inflation, closer to the target. The MPC will not hesitate to take further action as may be required in its future meetings,” Das said. He also noted that the core inflation is still ‘rigid’, further reinforcing the fact that the inflation battle will be “gradual and protracted”.

One of the factors which could spoil RBI’s inflation projections is the threat of El Niño, which could adversely impact farm output. Earlier, the Finance Ministry had also flagged its concerns amidst an IMD prediction of above-normal temperatures in India this year.

“An El Nino this year will negatively impact kharif sowing and next year’s rabi sowing due to lower availability of water,” said JM Financial.

On the whole, while making marginal revisions in its GDP and inflation outlook, Das said he is confident that the MPC is on the right track and is maintaining an agile stance to ensure the financial system’s stability, recalling Kautilya’s (also known as Chanakya) advice: “Be not slack before the whole job is finished”.

The first MPC meet of FY24 has set a positive tone on both the critical fronts of growth and inflation. It remains to be seen if it is on the right track or if a course correction is required down the path.