India growth momentum may continue in FY 24: RBI

India’s growth momentum is likely to sustain in 2023-24 in an atmosphere of easing inflationary pressures, sound macroeconomic policies, softer commodity prices, a robust financial sector, a healthy corporate sector, continued fiscal policy thrust on quality of government expenditure, and new growth opportunities stemming from global realignment of supply chains, said the Reserve Bank of India (RBI) in its Annual Report FY23 released Tuesday.

The Indian economy exhibited robust resilience in 2022-23 amidst a global turmoil following the war in Ukraine, and recorded a growth of 7%, the highest among major economies in the world.

The recovery in the domestic economy gained momentum during the second quarter of 2022-23 as domestic supply chains normalised and activity in contact-intensive sectors rebounded, the central bank noted.

“Robust balance sheets of the corporate sector and banks enabled a rebound in credit demand, which was also facilitated by a large increase in capex by the centre. With real GDP growing by an estimated 7 per cent, the Indian economy turned out to be one of the fastest growing major economies of the world during 2022-23,” RBI said.

RBI believes the prospects for the global economy continue to be shadowed by high inflation, the adverse effects of geo-economic fragmentation operating through restrictions on movements of trade, labour, capital and diffusion of technology, and potential amplification of financial sector vulnerabilities.

Medium- to long term challenges such as climate change, cyber security, crypto currencies, FinTech and tech disruptions can also potentially vitiate the outlook, it said.

Several shocks tested the resilience of the Indian economy in 2022-23. On the back of sound macroeconomic policies, softer commodity prices, a robust financial sector, a healthy corporate sector, continued fiscal policy thrust on quality of government expenditure, and new growth opportunities stemming from global realignment of supply chains, India’s growth momentum is likely to be sustained in 2023-24 in an atmosphere of easing inflationary pressures.

In the external sector, RBI expects the current account deficit (CAD) to remain moderate, drawing strength from robust services exports and the salubrious impact of moderation in commodity prices of imports.

With global uncertainties persisting, it expects foreign portfolio investment (FPI) flows may remain volatile, but the favourable domestic growth outlook, lower inflation, and business friendly policy reforms could, however, help sustain buoyant FDI inflows.

During 2022-23, headline inflation averaged 6.7%, 115 bps higher than a year ago.

Timely beginning of the monetary policy tightening cycle with a cumulative increase in the policy repo rate by 250 bps since May 2022 helped ease demand pressures, anchor inflation expectations and contain the second-round impact of successive supply shocks, RBI.

Meanwhile, indicators of consumption demand suggest a broad-based revival in 2022-23.

The rural demand, which was deeply scathed by the second wave of COVID-19 a year ago recovered, albeit at a slower pace, vis-à-vis urban demand.

Real rural wage growth virtually stagnated in 2022-23 despite a visible uptick in economic activity. Although job demand under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) declined on a y-o-y basis, it still prevailed above the pre-pandemic level in 2022-23, RBI said.

This indicates that the recovery, especially in the unorganised segment of the economy is not yet complete.

On the currency notes in circulation, the central bank report said that the value and volume of banknotes in circulation increased by 7.8% and 4.4%, respectively, during 2022-23.

In value terms, the share of ₹500 and ₹2000 banknotes together accounted for 87.9% of the total value of banknotes in circulation as on March 31, 2023, as compared to 87.1% as on March 31, 2022.

In volume terms, ₹500 denomination constituted the highest share at 37.9%, followed by ₹10 denomination banknotes which constituted 19.2% of the total banknotes in circulation as on March 31, 2023.

The Reserve Bank introduced its Central Bank Digital Currency (CBDC) in phases during the year, with the launch of pilots for Digital Rupee (e-Rupee) in the wholesale and retail segments on November 1, 2022 and December 1, 2022, respectively.

The value of e-Rupee-Wholesale and e-Rupee-Retail in circulation stood at ₹10.69 crore and ₹5.70 crore, respectively, as on March 31, 2023.

During 2023-24, the Reserve Bank aims at expanding the ongoing pilots in CBDC-Retail and CBDC-Wholesale by incorporating various use cases and features. The pilot in CBDC-Retail is proposed to be expanded to more
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