The Reserve Bank of India in its February bulletin said that the Indian economy is sustaining the momentum achieved in the first half of 2023-24, going by high frequency indicators, adding that the next round of capital expenditure by the corporate sector will likely fuel the next leg of growth.
"Expectations for a fresh round of capex by the corporate sector to take the baton from the government and fuel the next leg of growth are mounting," the central bank said in the 'State of the Economy' article.
RBI's survey shows that the investment intentions of private corporates remain upbeat and both services and infrastructure firms are optimistic about overall business conditions.
The RBI note said the investment cycle in India is gaining steam, thanks to sustained thrust on government capex, increasing capacity utilisation, the rising flow of resources to the commercial sector, and policy support from schemes such as production linked incentive (PLI scheme).
The note also stated that headline retail inflation in India, after moderating to 4.9 per cent in October, rose to 5.7 per cent in December due to food inflation, mostly vegetables.
"The softening in core inflation (CPI ex food and fuel) continued across both goods and services, reflecting the cumulative impact of monetary policy actions as well as significant softening in commodity prices," the report said.
Earlier this month, RBI left its inflation forecast for this fiscal year unchanged at 5.4%, despite food price rise concerns, uncertainty around crude costs even amidst a recent slump and chances of domestic growth momentum creating demand pressure on inflation.
"Food price inflation continued to impart considerable volatility to the inflation trajectory," RBI Governor and MPC Chair Shaktikanta Das said while announcing the policy decisions. "In contrast, the deflation in CPI fuel deepened and core inflation (CPI inflation excluding food and fuel) moderated to a four-year low of 3.8 per cent in December."
Other highlights in the report:
• The Interim Budget for 2024-25 places the gross fiscal deficit of the Union government at 5.1 per cent of GDP in 2024-25, in line with the target of 4.5 per cent of GDP by 2025-26. The impetus provided to capital expenditure in the post-pandemic period has been sustained by increasing its share to 3.4 per cent of GDP.
• Empirical findings show that medium-term complementarities between judicious fiscal consolidation and growth outweigh the short-run costs. Spending on social and physical infrastructure, climate mitigation, digitalisation and skilling the labour force can yield long-lasting growth dividends
• Using a dynamic stochastic general equilibrium model, we find that if government expenditure is directed towards the above-mentioned segments, the debt-GDP ratio of the general government can decline substantially to 73.4 per cent of GDP by 2030-31.
• The desirable properties of various core inflation measures – exclusion based, trimmed means, reweighted CPI, and the trend CPI – held up vis-à-vis the pre-COVID period.
• Since early 2020, multiple supply side shocks, particularly in food and energy, have led to some degree of persistence in headline inflation. This led to spillovers from non-core to core inflation weakening some properties of core inflation, although in the long-run, non-core inflation still converges to core inflation.
• Results show that the SIOS has demonstrated its efficacy as a tool for forward looking assessment by establishing a robust connection between survey parameters and macroeconomic variables. The survey responses provide a useful lead information for comprehending the evolution of output and prices in the services and infrastructure sector
• Despite the challenges emanating from the pandemic and the subsequent external shocks, both the services and infrastructure sectors gradually rebounded as businesses reopened and restrictions eased. The perception of business entities captured by the survey indicates that despite differences in their nature of business, post-COVID, both sectors covered in the SIOS exhibited a recovery of confidence in the economy.
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