NEW DELHI: The Indian economy is on a firm footing with improved external sector sustainability and robust corporate balance sheets, which along with a thrust on production-linked incentive (PLI) schemes would foster job creation, the Reserve Bank of India said in its annual report issued Thursday.
The central bank also said the world’s fourth-largest economy is well placed to accelerate its growth trajectory over the next decade. “The outlook for the Indian economy remains bright, underpinned by a sustained strengthening of macroeconomic fundamentals, robust financial and corporate sectors and a resilient external sector,” RBI said.
The central bank projected India’s real GDP growth at 7% this fiscal. Growth is likely to be supported by improved prospects for the agriculture sector and rural activity following the ebbing of the El Nino climate pattern and forecast of above normal southwest monsoon, it said.
The economy grew at 7.6% in 2023-24 against 7% in 2022-23, navigating the drag from protracted geopolitical tensions and volatile global financial markets.
Despite a decline in exports in sync with lower global demand, India’s external sector gained strength with the narrowing of the current account deficit (CAD) and with foreign exchange reserves reaching an all-time high.
The CAD moderated to 1.2% of GDP during April-December 2023 from 2.6% a year earlier. Foreign exchange reserves rose to $648.7 billion as of May 17, covering 11.4 months of imports and strengthening buffers against external sector risks and adverse spillovers.
The government’s thrust on capex while pursuing fiscal consolidation, and consumer and business optimism augur well for investment and consumption demand, RBI said.
“Investment was the major driver of domestic demand, buoyed by government spending on infrastructure,” it said. Gross fixed capital formation rose to 10.2% in FY24 from 6.6% a year before.
RBI said investments under PLI schemes are likely to gain traction, creating new jobs, improving labour incomes and boosting domestic demand.
The economy will however have to withstand increased global uncertainty and an expected weaker global growth.
“Geopolitical tensions, geoeconomic fragmentation, global financial market volatility, international commodity price movements and erratic weather developments pose downside risks to the growth outlook and upside risks to the inflation outlook,” RBI said.