NEW DELHI: RBI in its state of the economy report has said that supply conditions in India are improving, with the recent monsoon pick-up, strong momentum in manufacturing and a rebound in services.
The onset of the festival season should boost consumer demand, including rural, also as sowing activity picks up. Robust central government capital outlays are supporting investment activity, it said. As per the apex bank, India’s economy is resilient in comparison to the rest of the world. The private consumption expenditure will get a boost in view of the upcoming festive season, besides buoying the subdued rural demand.
“Investment demand is benefiting from the massive increase of 54 per cent in the central government’s capital outlay, but business investment remains tepid in spite of strong sales growth and increase in profits,” RBI said. Meanwhile, total merchandise exports are set to rise with the reduction in the windfall levy on fuel exports.
The easing of international crude oil prices will also bring down the import bill, allowing net exports to improve their contribution to aggregate demand. The central bank is confident about the state of the economy on account of three developments – the launch of 5G connectivity, better-than-expected corporate earnings and active recognition of climate change as a risk to the stability of the financial system.
Moreover, moderation in inflation and return of capital flows to India after a hiatus have been the most heartening developments in recent time, RBI concluded. Inflation in July 2022 declined by 30 bps from June 2022 and an appreciable 60 bps from the average of 7.3 per cent for the first quarter of FY23.
“India is becoming a preferred destination for portfolio flows - in August so far (until 12th), equity and debt segments recorded a net inflow of USD 4.4 billion and 0.3 billion, respectively,” the report said. “The challenges before us are to regain the momentum lost to the pandemic and the shocks that followed in its train, close the infrastructure gap .”