Indian Economy Remains Outlier Amid Darkening Global Prospects, Says RBI

India's economic prospects look brighter than most economies due to easing supply chain pressures, the Reserve Bank of India said on Monday.

Amid a volatile global environment, India stands out as the emerging growth engine for the world, RBI Governor Shaktikanta Das wrote in the September bulletin, while assuming the significance of continued and timely supply-side interventions in cushioning against global shocks.

Under the present conditions, India's gross domestic product is now projected at 6.6% for the quarter ending September.

Due to disruptions caused by Covid-19 and the Russia-Ukraine war, global supply chains have been under pressure, resulting in a spike in global commodity prices that compelled central banks all over the world to tighten their monetary policy aggressively.

Tight financial conditions and volatile capital flows are worsening the global economic slowdown, the RBI said. It stressed the need for climate-friendly technology, new and renewable sources of energy, and sustainable agricultural practices amid growing climate change risks.

On the inflation front, most major economies are bearing the brunt of rising commodity prices. However, the central bank expects India's retail inflation to improve in September.

The latest inflation reading in India shows a moderation in consumer prices to 6.83% in August as compared with a 15-month high of 7.44% in the previous month. This slowdown in prices is attributed to some easing in vegetable prices.

"We expect to see an appreciable slowdown in vegetable inflation from September," the RBI said. "The prospects for kharif crops have improved, thanks to the progress of the monsoon in July."

The outlook for cereal prices has brightened, supported by active supply-side interventions, it said.

However, experts remain cautious due to rising crude oil prices above $90 per barrel.

India is a net importer of crude oil. Therefore, imports have exceeded exports in absolute terms, which dragged the country's real GDP growth by 4.6 percentage points in the June quarter, according to the RBI.

Regardless of the uncertainty around El Nino conditions and renewed geopolitical tensions, the RBI said the correction in vegetable prices is not complete and there is room for more.

There are early indications that vegetable prices beyond tomatoes, onions, and potatoes will correct, it said.