In the midst of a dynamic global economic scenario, India stands on a firm footing in fiscal year 2024-25, bulwarked by the Reserve Bank of India's (RBI) steadfast commitment to maintaining price stability and promoting sustainable growth. The recent decision by the Monetary Policy Committee (MPC) to keep the benchmark repo rate unchanged at 6.5 per cent goes on to show the firm resolve of the central bank to keep inflation under check, to the most desired extent possible. The unrelenting approach of the RBI may also be acting as a shield against a host of economic challenges, both internal and external.
Notably, the headroom for striking consistent blows to inflation is provided by the growth cushion India enjoys presently. Despite an adjustment in GDP growth forecast from the previous fiscal year, with expectations now set at 7 per cent, down from 7.6 per cent, the Indian economy exhibits resilience and promise. Importantly, the average retail inflation forecast of 4.5 per cent, a decrease from 5.4 per cent in the preceding fiscal year, offers a glimmer of hope, although lingering uncertainties in food prices necessitate vigilant monitoring.
As per the MPC report, the buoyancy of rural demand, facilitated by an optimistic outlook for agriculture, has emerged as a beacon of hope. With a bountiful rabi wheat crop and anticipated normal monsoon, rural activities are poised to thrive, playing a pivotal role in enhancing overall economic growth. Moreover, the momentum in manufacturing and services sectors, coupled with the anticipated surge in private consumption, offers a robust foundation for sustained economic expansion. However, presumption of strong private consumption might be far too optimistic in times when unemployment prevails as a palpable problem. However, the recently released Household Consumption Expenditure Survey reaffirms the MPC’s presumption of anticipated rise in private consumption. The survey found that average monthly per capita consumer expenditure rose 33.5 per cent since 2011-12 in cities to reach Rs 3,510, and 40.4 per cent in rural India to Rs 2,008.
It is pertinent to note here that India's economic march is not immune to external headwinds, particularly protracted geopolitical tensions and disruptions in global trade routes. These challenges loom large on the horizon, casting a shadow of uncertainty over the economic outlook.
In its pursuit of fostering financial inclusion and market participation, the RBI has introduced a slew of initiatives aimed at broadening access to financial services. The decision to permit trading of Sovereign Green Bonds in the International Financial Services Centre (IFSC) is a commendable step towards attracting non-resident investment and promoting sustainable financing solutions. Furthermore, initiatives such as the launch of a mobile app for retail participation in government securities (G-secs) and the facilitation of cash deposits through the Unified Payments Interface (UPI) underscore the RBI's efforts to modernise and democratise financial transactions.
The RBI's forward-looking approach to digital payments is exemplified by its decision to allow non-bank payment system operators to offer Central Bank Digital Currency (CBDC) wallets. This initiative, coupled with efforts to link Prepaid Payment Instruments (PPIs) with third-party UPI applications, is poised to revolutionise the digital payments landscape. Looking ahead, the RBI remains vigilant, with the next MPC meeting scheduled in June 2024.