India’s growth faces global risks, cautious optimism need of hour
The latest endorsement of India’s commendable growth has come from the Reserve Bank. On Friday, while keeping the benchmark repo rate unchanged at 6.5 per cent, the central bank raised its 2023-24 growth projection by half a percentage point to 7 per cent. The news is good not solely because of the numerical increase, but also because the RBI considers the revised number conservative. Deputy Governor Michael Patra said that high-frequency data from October and November confirm robust growth. If we take into account the growth in the first half of the financial year, chances are that the final print would exceed 7 per cent. Rural demand, the important missing piece in the second quarter, seems to have turned a corner. As governor Shaktikanta Das explained, despite the kharif season’s late harvest, the October-November period witnessed two-thirds of rabi sowing, which means agricultural output will likely grow faster than the first quarter’s dismal 1.2 per cent.
During the 42-day festive period, two-wheeler sales recorded a robust 20.7 per cent growth, followed by a decent increase in consumer goods and a 4.6 per cent decline in rural job scheme payouts in November—the first such fall this year—indicating a rural recovery. As for investment, the other crucial cog in the growth wheel, the government’s capital expenditure shot up 36.7 per cent during April-October. Private capex, too, is showing signs of picking up, particularly in the petroleum, steel, cement and chemicals sectors. The biggest affirmation can be seen through capacity utilisation, which the RBI says touched the long-period average of 74 per cent. As Das noted, private investment is happening more through internal reserves and surpluses than through debt.
All this sounds good. But the caveat is that forecasts have rarely been accurate in recent years. The buoyancy seen during the festive quarter usually tones down by the fourth quarter; it is unclear whether the momentum can be sustained. The RBI itself expects global growth to slow down in 2024-25, though it is still anticipating a substantial 6-6.5 per cent. The supply chain and commodity price shocks are receding, but global demand is still fragile. Tighter liquidity and global monetary conditions could affect financial conditions at home. The risks of volatility in crude prices and exports are never far. While India’s growth optimism quickens the pulse, a few months of good data should not push us into complacency.