Resilient Indian Economy to Maintain High Growth Rate, RBI Says

(Bloomberg) -- India’s economy is resilient, and better positioned than many parts of the world to face a global growth slowdown or even a recession, the country’s central bank said.

Asia’s third-largest economy has emerged from the pandemic years “stronger than initially thought,” the Reserve Bank of India said in its State of the Economy report Tuesday. “Unlike the global economy, India would not slow down – it would maintain the pace of expansion achieved in 2022-23.”

However, this resilience is not properly captured in numbers because of statistical base effects of the past, the RBI said. The economy slowed to 4.4% in the October-December period as manufacturing contracted. What the numbers suggest though, is that “private consumption may edge down further, going by high frequency indicators, including and perhaps mainly due to elevated inflation.” 

The RBI’s report said easing of supply chain pressures and rebound in services activity are aiding growth, but the January-March quarter numbers must be read “with a pinch of salt because unfavorable base effects will be strong.”

Consumer inflation in India will likely range between 5% and 5.6% in the next financial year that starts in April, the RBI said. However, adverse weather conditions impacting seasonal rains pose a risk. Harvesting of winter crop is also getting impacted by heat waves, untimely rains and hailstorms, risking an increase in food inflation.

READ: Rate Hike Odds Rise as Inflation Breaches RBI’s Target Again 

Core inflation, which strips out volatile food and fuel prices from the headline, and has stayed sticky at above 6% for 17 months in a row, continues to “defy the distinct softening of input costs,” the central bank said.

Meanwhile, a separate article in the bulletin by two RBI staffers, joined the chorus demanding revision of India’s data collection process for calculating inflation. The present method of consumer price index compilation “at times creates challenges” for use of the index for policymaking, said Praggya Das and Asish Thomas George from the RBI’s monetary policy department.

The researchers highlighted January and February prints that topped estimates to jump way above the central bank’s 6% target. The duo, who don’t represent the RBI’s official views, suggested an alternate aggregation method that conforms to international standards and also takes into account timely revisions in base years.

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