Despite global headwinds, RBI goes ahead of IMF, pegs growth at 6.5%

Even as the International Monetary Fund (IMF) has enhanced India's economic growth projection to a conservative 6.3 per cent for the current fiscal, the Reserve Bank of India (RBI) last week said that the country is poised to become the growth engine of the world, as it retained the GDP projection for 2023-24 at 6.5 per cent.

Unveiling the bi-monthly monetary policy review, RBI Governor Shaktikanta Das said on October 6 that the domestic economy exhibits resilience on the back of strong demand.

He said the economic growth in the current year is expected to be at 6.5 per cent with the risks evenly balanced.

The projection is the same as was estimated in the August monetary policy.

Despite geopolitical tensions and disruptions in global supply chains, the RBI governor reiterated his confidence in the resilience of the Indian economy and listed several reasons for projecting a 6.5 per cent growth estimate for 2023-24.

Let us look at some of them:
Despite an uneven monsoon, the acreage under kharif crops was 0.2 per cent above last year's level, as of September 29, he said in his speech after the monetary policy committee's meeting.

Rainfall over the monsoon core zone, consisting of most of the rainfed agriculture regions was normal, at 101 per cent of the long-term average.

Das said that manufacturing improved in July and August 2023 in key sectors such as pharmaceuticals, basic metals, cement, motor vehicles, as well as food and beverages.

The index of industrial production (IIP) rose by 5.7 per cent in July and the core industries' output expanded by 12.1 per cent in August.

The purchasing managers' index (PMI), which is a survey that measures the business activity and sentiment, for manufacturing remained robust in September, the RBI governor noted.

There's a healthy expansion in the services sector and construction activity continues to be strong.

Cement production grew 18.9 per cent in August 2023 and steel consumption increased 21.5 per cent, compared to the same time last year.

The private sector is investing more, he informed. Production of capital goods increased 4.6 per cent in July 2023, while imports of similar products rose 13.3 per cent in August 2023.

The average capacity utilisation between 2008-09 till now, excluding the peak pandemic period i.e. April to June 2021, has been 73.7 per cent according to the RBI.

“Banks have sanctioned new projects in roads, bridges, inland waterways, railways, electricity, ports, airports, chemicals and fertilisers,” the governor said.

The fall in exports has slowed down in August to 1.7 per cent from more than 10 per cent in the preceding two months.

Services exports have grown 5 per cent to over $133 billion between April and August this year, compared to the same time last year.

The fall in non-oil, non-gold imports, has also slowed down, Das said.

There's steady growth in urban consumption while rural demand is showing signs of revival, the RBI said, despite rising inflation.

Based on these positive indicators, the RBI has kept the growth rate for 2023-24 at a competitive 6.5 per cent.

The IMF on its part earlier this week, raised its growth forecast for India to 6.3 per cent, saying the country's growth will remain strong in 2023 and 2024.

According to the IMF's October update of its World Economic Outlook, India's economy will grow 6.3 per cent in 2023, an increase from an earlier forecast of 6.1 per cent.

"Growth in India is projected to remain strong, at 6.3 per cent in both 2023 and 2024, with an upward revision of 0.2 percentage points for 2023, reflecting stronger-than-expected consumption during April-June," the IMF said.