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Published: October 28, 2024
Updated: October 28, 2024

India's Economic Outlook: Inflation to Ease by Q4 Amid Geopolitical and Climate Risks, Says RBI Governor Das

In a recent address, Reserve Bank of India (RBI) Governor Shaktikanta Das provided insights into India's inflation and growth prospects. Speaking at the Peterson Institute for International Economics' ‘Macro Week 2024’ event in Mumbai, Das shared that India’s inflation is projected to ease starting in the fourth quarter of the current fiscal year, although global conflicts and unpredictable weather patterns pose risks.

Inflation Expected to Cool in Q4

Governor Das stated that inflation, currently a challenge for the Indian economy, is anticipated to gradually moderate in the final quarter of this financial year. However, he cautioned that worsening geopolitical tensions and unexpected weather events could drive inflation upward. These factors, he emphasized, remain significant risks to India's inflation outlook.

A Stable Economy with Balanced Growth

Das underscored that India’s economy is "well-poised" in balancing inflation and growth. The Indian economy, he noted, reflects a picture of resilience and stability, strengthened by the recovery from the severe economic contraction during the COVID-19 pandemic. The RBI’s monetary policy committee (MPC), which oversees interest rates, is now focused on guiding inflation toward the 4% target while maintaining economic growth.

Strong GDP Growth and Domestic Demand

India’s real GDP has grown by an average of over 8% over the past three fiscal years, demonstrating the nation’s robust recovery. For FY25, the RBI projects a GDP growth rate of 7.2%, supported by improving domestic demand, lower input costs, and a favorable policy environment. The services sector is performing well, as are manufacturing activities driven by increased private consumption and investment.

Boost from Private Consumption and Investment

Private consumption, a primary driver of aggregate demand, shows promising improvement. A positive agricultural outlook and increased rural demand are fueling this trend, with the services sector also adding momentum to urban demand. Government spending on capital expenditure and strong financial health in banks and corporates are further supporting private investment, contributing to economic resilience.

Banking Sector Health and Financial Inclusion

Highlighting the health of India’s financial institutions, Das mentioned that banks and non-banking financial companies (NBFCs) have shown strong performance metrics, leading to consistent credit flows, especially in underserved regions. This expansion is crucial for promoting financial inclusion, allowing more people and businesses to access financial services across India.

Six Key Priorities for G20 and Global Financial Institutions

Governor Das also outlined six areas of focus for G20 countries and global financial institutions, including reforming the international financial framework, enhancing debt restructuring processes, improving financial regulations, addressing digital divides, combating economic fragmentation, and promoting climate finance. He emphasized the need for increased voice and representation for emerging economies in institutions such as the IMF and the World Bank, which would foster global cooperation on macroeconomic challenges.

Calls for a Revamped Debt Resolution Framework

The governor highlighted the importance of overhauling the current debt restructuring system, suggesting that it incorporate both public and private creditors and support timely debt restructuring linked to sustainable development goals. Das cautioned that without these reforms, vulnerable countries may continue to face heavy debt burdens, which could ultimately destabilize global financial markets. Governor Das projected an optimistic outlook for India's economy, with inflation expected to moderate and growth remaining robust. Nonetheless, he acknowledged that external risks from global conflicts and climate-related uncertainties could impact this trajectory. Accordingly, India's strategic approach to balancing inflation, growth, and financial stability underscores the resilience of the nation’s economy.