The Reserve Bank of India (RBI) on Wednesday retained its real GDP forecast at 7.2 per cent for the current financial year 2021-22. Addressing the media, RBI Governor Shaktikanta Das said that during the current difficult and challenging times, the Indian economy has remained resilient, supported by strong macroeconomic fundamentals and buffers.
“The real GDP growth for 2022-23 is retained at 7.2 per cent, with Q1 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 per cent; and Q4 at 4.0 per cent, with risks broadly balanced,” Das said.
He added that capacity utilisation improved to 74.5 per cent in the March 2022 quarter, compared with 72.4 per cent in the preceding quarter, and is likely to increase further. He also said a rise in non-oil and non-gold imports indicates recovery. “Available information for April and May 2022 indicates that the recovery in domestic economic activity remains firm, with growth impulses getting increasingly broad-based.”
The RBI governor said manufacturing and services purchasing managers’ indices (PMIs) for May point towards further expansion of activity. This is also corroborated by movements in railway freight and port traffic, domestic air traffic, GST collections, steel consumption, cement production and bank credit. While urban demand is recovering, rural demand is gradually improving.
“Investment activity is…expected to strengthen, driven by rising capacity utilisation, government’s capex push and deleveraged corporate balance sheets. Improvement in investment activity is also reflected in pick-up in demand for bank credit and persisting growth in imports of capital goods. Merchandise exports have remained buoyant with double-digit growth for the fifteenth successive month in May, while high growth of non-oil nongold imports is indicative of recovery in domestic demand conditions,” Das said.
He added that good monsoon should support rural consumption. The RBI’s survey also suggests improvement in consumer confidence in the year ahead. He also said that looking ahead, real GDP is expected to broadly evolve on the lines of the April 2022 MPC resolution. The forecast of normal south-west monsoon should boost kharif sowing and agricultural output. This will support rural consumption. The rebound in contact-intensive services is expected to sustain urban consumption.
According to the provisional estimates released by the National Statistical Office (NSO) on May 31, 2022, India’s real gross domestic product (GDP) growth in 2021-22 is estimated at 8.7 per cent. The level of real GDP in 2021-22 has exceeded the pre-pandemic (2019-20) level. On the supply side, major categories also surpassed the 2019-20 levels.
On the banking sector, Das said the Indian banking system remains resilient and strong. “Our supervision has been significantly deepened over the past three years. Each bank is monitored very closely by RBI; we have real-time data available.”
The Concerns
Das said, “Nevertheless, the negative spillovers from geopolitical tensions; elevated international commodity prices; rising input costs; tightening of global financial conditions; and slowdown in world economy continue to weigh on the outlook.”
He added that the ongoing Russia-Ukraine war is also turning out to be a dampener for global trade and growth. The faster pace of monetary policy normalisation undertaken by systemic advanced economies (AEs) is leading to heightened volatility in global financial markets.
“This is reflected in sharp corrections in major equity markets, sizeable swings in sovereign bond yields, US dollar appreciation, capital outflows from EMEs and even from some AEs. The EMEs (emerging market economies) are also witnessing depreciation of their currencies,” the RBI governor said.
He also said food and commodity prices remain elevated, the Russia-Ukraine war has led to the globalisation of inflation and central banks cross the world are reorienting policies.
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