While festival demand remains “ebullient” and consumer sentiment is “upbeat”, India has “miles to go” and is “not out of the woods yet” on inflation, according to a report in the Reserve Bank of India’s monthly bulletin.
“We are not out of the woods yet and have miles to go, but readings of around 5 per cent and 4.9 per cent in September and October, respectively, are a welcome relief from the average of 6.7 per cent in 2022-23 and 7.1 per cent in July-August 2023,” the ‘State of the economy’ article in the bulletin said. Headline inflation came down to 4.9 per cent in October from the average of 6.7 per cent in 2022-23 and 7.1 per cent in July-August 2023.
“Festival demand is ebullient. In urban areas, consumer appliances are in strong demand, especially in the mid- and premium segments. Consumer sentiment is upbeat,” the article said. Close to 80 per cent of purchases of consumer durables are reported to be through consumer financing schemes spiced up with attractive equated monthly instalment (EMI) offers. Entry-level segment demand is relatively subdued as ‘premiumisation’ shows clear signs of developing into a consistent trend, the article said.
Investment demand appears to be resilient with the government’s infrastructure spending, an uptick in private capex, automation, digitalisation, and indigenisation providing a boost, it said.
The report said a combination of monetary policy action and supply side interventions guided inflation down from the high reaches to which it had climbed through the first seven months of 2022-23. In fact, November 2022 was the first month when headline inflation dropped back into the RBI’s tolerance band in the whole calendar year, it said.
According to the RBI, the global economy shows signs of slowing down in the final quarter of 2023 as manufacturing languishes while services sector activity appears to have reached the end of its post-pandemic expansion. Going forward, tightening financial conditions is a significant risk to the global outlook. In India, the momentum of the change in GDP is sequentially expected to be higher in Q3:2023-24, with festival demand remaining ebullient, it said.
It said India’s external sector has remained viable, with a modest current account deficit (CAD) financed by resilient capital flows, one of the least volatile currencies in the world and a healthy level of foreign exchange reserves. “The momentum of growth has picked up, taking GDP well above pre-pandemic levels to becoming the fifth largest economy in the world at market exchange rates,” the bulletin said.
It said steadfast policy initiatives are showing results, with the financial sector exhibiting soundness and supporting the credit needs of a resurgent economy. “In the payments space, India has made significant strides while offering its digital public infrastructure to the world. This period also witnessed India assuming the presidency of the G20,” the report said.
“India’s priorities and deliverables as well as achievements contributed to global public welfare and left a rich legacy of further actionable issues that would help bind the world into one family,” the bulletin said.