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The Indian economy is expected to achieve stronger-than-expected growth in 2023-24, with the government’s focus on capital expenditure starting to attract private investment, said the Reserve Bank of India (RBI). The article, titled ‘State of the Economy,’ in the RBI’s bulletin highlights the shift from consumption to investment as a key factor driving India’s economic growth.
The authors, led by Reserve Bank Deputy Governor Michael Debabrata Patra, suggest that the government’s emphasis on capital expenditure is beginning to crowd in private investment. The article also points out that potential output in India is increasing, with actual output running above it, although the gap is moderate.
“The Indian economy recorded stronger-than-expected growth in 2023-24, underpinned by a shift from consumption to investment,” it said.
Looking ahead to 2024-25, the authors recommend sustaining this momentum by aiming for real GDP growth of at least 7 per cent in an environment of macroeconomic stability.
“In 2024-25, the objective should be to sustain this momentum by securing real GDP growth of at least 7 per cent in an environment of macroeconomic stability,” they said.
They emphasise the need for inflation to align with the target by the second quarter of the year and to be anchored there. Additionally, the authors stress the importance of strengthening the balance sheets of financial institutions, improving asset quality, and continuing the ongoing consolidation of fiscal and external balances.
The article highlights the transformative technological change underway and calls for harnessing its gains for inclusive and participative growth in a sound, risk-free environment. It emphasizes that the government’s thrust on investment through capital expenditure should be complemented and led by the corporate sector, with supplementary support from foreign direct investment.
The article also notes that the weak global outlook could improve if geopolitical conflicts are resolved, leading to a containment of their repercussions on commodity and financial markets, trade, transportation, and supply networks. It stresses the need to vanquish inflation, paving the way for easing financial conditions to support growth.
The RBI clarifies that the views expressed in the Bulletin article are those of the authors and do not necessarily represent the views of the central bank.
(With PTI inputs)
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