According to Tuesday's state of the economy report by the RBI, extreme weather events and persistent geopolitical tensions may contribute to inflation risks, while also potentially causing fluctuations in crude oil prices. The report highlighted a positive trend in real GDP growth, supported by robust investment demand and optimistic sentiments among businesses and consumers.
They are flagging off risks from extreme weather conditions that would pose risks to inflation along with risks from the geopolitical tensions that could flare up crude prices. In their assessment of the economy, the RBI economists in its latest monthly bulletin also say that the economy has to grow 8-10 percent every year to reap the demographic dividend.
Ashima Goyal emphasized India's resilience to supply shocks and anchoring of inflation expectations. Bhide expects food inflation to ease in 2024. Both acknowledged inflation risks from geopolitical tensions.
In the last monetary policy committee (MPC) review on rates earlier this month, the panel decided to keep the policy rates unchanged, stretching the status quo on the cost of funds to at least 16 months.
India's economic prospects face challenges from global uncertainties and rising commodity prices. Policy certainties, inflation concerns, job creation, and electoral targets shape the path ahead, reflecting a mix of opportunities and challenges in the evolving economic landscape, says Finance Minister Nirmala Sitharaman
Economists anticipate the Reserve Bank of India (RBI) to maintain its policy rate at 6.5% for the fiscal year 2024-25 due to factors like higher-than-targeted inflation, global influences such as commodity prices, and a stronger dollar. The RBI's decision will also hinge on domestic factors like growth driven by capital expenditure (capex) and productivity.
India's wholesale price index-based inflation surged to 0.53% in March from 0.20% in February, driven by a significant increase in onion and potato prices. Onion prices rose by 56.99% and potato prices by 52.96% in March, leading to concerns about a shortage in onion supply until the next kharif crop. Wholesale food inflation also increased to 4.7%, with notable rises in food articles, electricity, crude petroleum, natural gas, machinery, and other manufacturing.
Iran Saturday night launched a drone missile attack on Israel. This was in response to a suspected Israeli strike on its consulate in Damascus on April 1 in which seven Iranian Revolutionary Guard Corps personnel, including two generals, were killed. New Delhi has called for immediate de-escalation and a return to the path of diplomacy. The development comes as India gears up for general elections from April 19 to June 1. Independent economists said the government will need to remain vigilant.
In March, India's retail inflation reached a five-month low of 4.85 per cent, attributed to reduced food prices, according to the Ministry of Statistics & Programme Implementation (MOSPI). The CPI Food index fell to 8.52 per cent, while industrial production rose by 5.7 per cent in February 2024.
On Tuesday, private forecaster Skymet predicted a normal monsoon for the year, lifting optimism for farm output and rural demand, crucial for sustained revival of the FMCG sector. Last year saw irregular monsoons with either below normal or erratic rains. India's villages contribute nearly 40% of annual FMCG sales.
Global average temperatures are on a rise, with accompanying increase in extreme weather events (EWE), and the economic and social impact of global warming is becoming increasingly evident, said RBI's Monetary Policy Report - April 2024.
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