India's economy to exceed 6% growth despite global challenges, says RBI MPC member

Indian economy: India's economy is poised to achieve a growth rate exceeding 6 per cent in the current fiscal year, according to Ashima Goyal, a member of the Reserve Bank of India's Monetary Policy Committee (MPC). Despite ongoing global challenges, such as a slowdown in exports, geopolitical tensions driving up oil and food prices, and unpredictable weather patterns, Goyal remains optimistic about the country's economic prospects. India's GDP growth for 2022-23 stood at 7.2 per cent, a decline from the previous year's 9.1 per cent, and the RBI anticipates a 6.5 per cent growth rate for the current fiscal year. 

Goyal also addressed concerns about inflation, stating that inflation expectations among businesses have stabilised around 4 per cent, indicating that price increases are being managed within this range. Goyal pointed out that core inflation is showing signs of softening, and inflation targeting has taught price-setters to withstand temporary supply shocks. She suggested that monetary tightening should be sufficient to anchor inflation expectations even in the face of repeated supply shocks, like those resulting from events such as the Ukraine war. Goyal also emphasised the role of supply-side policies in reducing inflation.

Inflation above target

Although retail inflation in India declined to 6.83 per cent in August from a 15-month high of 7.44 per cent in July, it remains above the Reserve Bank's target range of 2 to 6 per cent. Goyal responded to concerns about declining private capital expenditure by cautioning against over-interpreting quarterly changes, noting that annual gross domestic capital formation has been increasing since the pandemic, albeit with fluctuations in individual quarters.

Goyal explained that government capital expenditure can create opportunities for private investment in various sectors, including steel, cement, logistics, and green infrastructure. She emphasised that private capital expenditure will rise in tandem with GDP growth, driven by policy continuity.

Oil price impact

Regarding the impact of rising crude oil prices on subsidies and inflation, Goyal pointed out that the government and oil companies have built up buffers to mitigate the effects of fluctuating international oil prices. In an inflation-targeting regime, temporary cost increases are typically absorbed without causing second-round effects, and efforts to diversify away from oil have reduced the pass-through of higher oil prices to Indian inflation.

Despite delays in releasing updated consumer expenditure survey data and census results, Goyal noted that India now has access to various high-frequency data sources that can aid in policymaking. The Ministry of Statistics and Programme Implementation decided to withhold the 2017-18 Consumer Expenditure Survey results due to data quality issues, with the next survey reference period set for 2022-23. The decadal Census, initially postponed due to the pandemic, is unlikely to take place before the April-May 2024 Lok Sabha elections.

(With PTI inputs)