India needs to sustain the momentum of strong economic growth in 2024-25 by securing at least 7 per cent expansion in GDP, while bringing down retail inflation to the target of 4 per cent in the coming months, said the RBI's January Bulletin issued on Thursday.
The world economy faces divergent near-term growth prospects and emerging market economies led by Asia are poised to outperform the rest of the world, said an article published in the Bulletin.
"The Indian economy recorded stronger-than-expected growth in 2023-24, underpinned by a shift from consumption to investment. The government's thrust on capex is starting to crowd-in private investment. Headline inflation recorded a marginal uptick in December, driven by higher food inflation due to unfavourable base effects," it said.
The article authored by a team led by Reserve Bank Deputy Governor Michael Debabrata Patra further said that in India, potential output is picking up with actual output running above it, although the gap is moderate.
"In 2024-25, the objective should be to sustain this momentum by securing real GDP growth of at least 7 per cent in an environment of macroeconomic stability," the authors said.
Accordingly, inflation needs to align with the target by the second quarter of the year, as projected, and get anchored there, they added.
Also, balance sheets of financial institutions need to be strengthened and asset quality improved even further, and the ongoing consolidation of fiscal and external balances needs to continue.
"The gains of the transformative technological change that is underway must be harnessed for inclusive and participative growth in a sound risk-free environment.
"Above all, the virtuous thrust to investment from government capex must be partnered and even led by the corporate sector, supplemented by foreign direct investment," it said.
The article also stressed that the weak global outlook can be brightened if geopolitical conflicts end and their repercussions through commodity and financial markets, trade and transportation, and supply networks are contained.
"Inflation must be vanquished, paving the way for financial conditions to ease in support of growth," it added.
The RBI, however, said the views expressed in the Bulletin article are of the authors and do not represent the views of the central bank.
The article also observed that in the primary market, fund mobilisation through issuances of certificates of deposit (CD) rose to Rs 5.6 lakh crore during 2023-24 (up to December 2023), higher than Rs 4.9 lakh crore a year ago.
"In December 2023, banks issued CDs over Rs 1.0 lakh crore – the highest in any month during the current financial year - to bridge the gap between credit growth and trailing deposit growth," it said.
Commercial Paper (CP) issuances at Rs 10 lakh crore (up to December 2023) against Rs 10.5 lakh crore in the same period a year ago.
Another article in the Bulletin on 'Are Food Prices the ‘True’ Core of India’s Inflation?' said Large and persistent changes in food prices have the potential to affect headline inflation lastingly, as prices of some components of the food group are seen to satisfy core inflation properties.
Policy makers need to determine the sources and nature of food price shocks to minimise the risks of over-reacting to transitory shocks as well as of looking through persistent shocks, it noted.
The central bank said the views expressed in the Bulletin articles are of the authors and do not represent the views of the Reserve Bank of India.