With growth in incomes, which would support domestic demand, and the high levels of investment in recent years that boost production capacity, the domestic economic activity would be sustained, says Shashanka Bhide, a member of the RBI's monetary policy committee. He added that the Indian economy is placed quite well for probably a stable high-growth period in front and is positioned well to deal with the significant risks that it is dealing with at this point in time.
He told , "With respect to growth momentum and inflation trends, the Indian economy is set for a possibly stable high growth phase. It is also in an enviable position given the huge risks that we are facing.".
The baseline official estimate of GDP growth for 2023-24 stands at 8.2 percent, compared to 7 percent in the previous year. Earlier this month, the Reserve Bank of India projected the GDP growth rate for FY25 in the region of 7.2 percent.
Bhide highlighted that normal rainfall in the monsoon season stands out as a big positive for growth and lower food inflation this year.
On the external front, he said that while improved global demand conditions are needed to lift external demand for goods and services, large capital inflows supporting investments reflect the economy's supply-side efficiencies and high growth potential both in terms of domestic demand as well as exports.
Concerning the inflation scenario, Bhide was worried mainly about the risks accruing from adverse weather and climatic conditions, disruptions to global supply chains because of international conflicts, and the inability of the global economy to bounce back rapidly from the current high period of inflation.
"Our overall CPI is driven primarily by high food inflation, and the reduction of this component of overall inflation will be significant in times ahead," he said.
Noting that food inflation stayed around 8 per cent between January-May 2024, he said the overall CPI-based inflation has been below 5 per cent since March-May 2024.
"The current policy rate combined with gradual fall in inflation results in higher real interest rates; however, a sustained focus on alignment of inflation to the target is important to support growth," he added.
The six-member monetary policy committee, MPC of the Reserve Bank of India, kept the key interest rate, or the repo rate, unchanged for the eighth time in a row at 6.5 percent in its latest bi-monthly review earlier this month.
The RBI projected CPI-based retail inflation at 4.5 percent for FY25, with quarterly breaks of 4.9 percent in Q1 and 3.8 percent in Q2, 4.6 percent in Q3, and 4.5 percent in Q4.
Retail inflation was 4.75 percent in May.
The RBI, which has the mandate to keep inflation at 4 percent, with a 2 percent margin on either side, considers the CPI as the key factor while deciding on its monetary policy.
Read also | GIFT Nifty Achieves Historic $95.5 Billion Monthly Turnover in June
Read also | India Surges to Become the Third Largest Domestic Aviation Market Alongside US and China
