RBI Raises FY24 GDP Growth Forecast To 7%, Warns About Food Inflation Threat

Reserve Bank of India (RBI) Governor Shaktikanta Das announced in his speech post the conclusion of monetary policy committee meeting on December 8 that GDP forecast for the current financial year has been raised from 6.5 per cent to 7 per cent. The apex bank has raised the GDP forecast for Q3FY24 to 6.5 per cent from the earlier 6 per cent prediction.

The positive change in its predictions for GDP comes a week after the India's growth numbers surprised domestic and global analysts. As per government data, India's GDP growth rate stood at 7.6 per cent, over 1 per cent higher than RBI's prediction of 6.5 per cent. Das had previously said at an event that growth is expected to surprise on the upside in this financial year.

In his post-MPC address, Das said, "Indian economy presents a picture of resilience and momentum." The governor also pointed towards the strong momentum in manufacturing and services sectors in the current financial year. However, he warned that global economic conditions remain fragile due to geopolitical tensions and high debt levels.

RBI's decision to increase its GDP forecast and the positive comments about the economy from Das come just a day after Finance Minister Nirmala Sitharaman addressed the Parliament on Indian economy. She said the country has become the second most sought after destination for manufacturing in the world.

"All sectors are growing significantly. Because of the Make in India programme and PM Modi's schemes, the manufacturing sector is also significantly contributing to the economy," Sitharaman added.

While the optimistic outlook of Das was visible in his address, the governor has also warned about the lingering threat of food inflation which refuses to subside.

Food Inflation Warning

RBI has not changed its inflation forecast for the upcoming quarters. For FY24, the CPI inflation projection remains at 5.4 per cent which the apex bank had raised earlier this year from 5.1 per cent. Since July, the country has seen elevated food prices due to supply shocks. Tomato, sugar, fruits, onion and some other food basket components have seen price spikes in the current financial year.

In October, retail inflation had slowed down to 4.87 per cent from 5.02 per cent in September. However, food price inflation had not cooled down significantly, with consumer food price index (CFPI) remaining nearly at the same level in October at 6.61 per cent.

Das said in his address, "An increase in vegetable prices may push CPI inflation higher in coming months. The crop output of cereals and pulses needs to be monitored and elevated sugar prices in the world are also a matter of concern."

RBI's projections suggest that it expects the CPI inflation print to settle at its target rate of 4 per cent in Q2 FY25. While RBI governor's address was less hawkish, analysts don't expect the central bank to cut repo rate before the next financial year.