‘India’s macro-fundamentals strengthened even after facing external shocks since 2020’

New Delhi: India’s macro-fundamentals strengthened even though it faced severe external shocks since 2020, Reserve Bank Monetary Policy Committee (MPC) member Ashima Goyal said on Monday.

The country’s economic diversity, adequate buffers, and feasible reforms have enabled policies to be countercyclical, she said.

With more and more firms and consumers internalising the inflation target, the economy is likely to approach the Reserve Bank of India’s (RBI’s) inflation target of 4 per cent this year.

“There have been severe external shocks (Russia-Ukraine war, Israel-Hamas war, oil prices, Houthi attacks) since 2020.

“But despite these, Indian macro-fundamentals have strengthened in this period,” she said, adding that the rupee has been relatively stable due to this.

“Economic diversity, adequate buffers, and feasible reforms... have enabled policies to be countercyclical. We have the capability to implement countercyclical policy and smooth external shocks,” she said.

Indian economy is projected to grow 7.3 per cent in the current fiscal, higher than 7.2 per cent in 2022-23.

As per the International Monetary Fund’s (IMF’s) World Economic Outlook, global growth is estimated to decelerate from 3.5 per cent in 2022 to 3 per cent in 2023 and further to 2.9 per cent in 2024.

The situation around the Bab-el-Mandeb Strait, a crucial shipping route connecting the Red Sea and the Mediterranean Sea to the Indian Ocean, has escalated due to recent attacks by Yemen-based Houthi militants.

Due to these attacks, shippers are taking consignments through the Cape of Good Hope, resulting in delays of almost 14 days and also higher freight and insurance costs.

The Red Sea route is also crucial for energy shipments.

Replying to a question on her outlook on inflation for 2024, Goyal emphasised that the recent spikes in commodity prices have tended to be short-term and were not able to upset a steady softening of core inflation towards the target of 4 per cent.

“As more and more firms and consumers internalise the inflation target, I see the economy approaching it (RBI’s inflation target of 4 per cent) in 2024,” Goyal said.