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With consumer price-based inflation (CPI) easing below the upper tolerance band of 6 per cent, the focus for 2023 is to tether inflation at those levels and further align it to the target of 4 per cent by 2024, the Reserve Bank of India (RBI) has said in a report.
Retail inflation eased to 5.72 per cent in December. In November, the inflation print was 5.88 per cent.
“Recent data arrivals indicate that the first milestone of monetary policy is being passed — bringing inflation into the tolerance band. The objective during 2023 is to tether inflation therein so that it aligns with the target by 2024 — the second milestone,” RBI said in its State of Economy report, published in the monthly bulletin for January.
The government has mandated the central bank to keep inflation at 4 per cent with a +/- 2 per cent band.
The report said the country’s macroeconomic stability is getting bolstered with inflation being brought into the tolerance band.
The report was prepared by RBI’s deputy governor Michael Patra and other RBI officials. The views expressed in the report are of the authors and not of the institution, the report said.
Authors said the prospect of India as a bright spot amidst 2023’s encircling gloom is burnished by most recent history and current developments. By cross-country standards, the country’s economy exhibited resilience through 2022 in the face of the triad of shocks – war; monetary policy tightening; and recurring waves of the pandemic.
An important factor in the overall outcome has been the measured responses of monetary and fiscal policies in sharp contrast to the aggressive tightening worldwide.
The report said the year 2023-24 may see deceleration in real GDP growth from 7 per cent in 2022-23 (NSO estimates) to 6.5 per cent as projected in the RBI’s monetary policy report of September 2022.
“At current prices and exchange rates, therefore, India will be a $3.7 trillion economy in 2023, maintaining its lead over the UK as the fifth largest economy of the world,” authors said.
The report said the fiscal consolidation is underway at central and sub-national levels, graduated to nurture the pace of the economic recovery.
Lead indicators suggest that the current account deficit is on course to narrow through the rest of 2022 and 2023.
The country’s stock markets stood out in 2022 and continue to outperform peers on the strength of macroeconomic fundamentals and retail participation. Furthermore, early bird results declared by 35 non-financial sector companies – mostly information technology (IT) sector companies – show that revenues were robust in the third quarter of fiscal 2022-23 (October-December 2022), with the depreciation of the rupee providing tailwinds, the report said.
Softening of commodity prices and other costs have eased expenditure slightly. As a result, both operating and net profits have improved, the latter in spite of a decline in other income on account of treasury losses.
The report further said that 2023 may well be the opening ajar of a window in which India’s time on the world stage is arriving.
In April 2023, India’s population will be the largest in the world, projected at 1.4 billion. A sixth of the increase of the world’s population of working age (15-64) people between 2023 and 2050 will be Indians.
“Coupled with a median age of 28, this is India’s chance to seize the demographic dividend and herald its emergence as an economic powerhouse of the future,” they said.
