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Published: December 1, 2023
Updated: December 1, 2023

RBI's Dilemma: Surging Q2 GDP Sparks Hawkish Outlook

GDP Triumphs Over Projections

India's GDP surged by an impressive 7.6% in the July-September quarter of fiscal year 2023-24, outperforming both market estimates and RBI projections. Fueled by robust government spending and stellar performances in key sectors, the nation remains the world's fastest-growing major economy.

RBI Contemplates Hawkish Stance as Inflation still beyond tolerance limits

As experts analyse the unexpected GDP growth, speculation arises that the RBI might adopt a hawkish stance in its upcoming monetary policy announcement on December 8. With rates held steady in October, the central bank now eyes the opportunity to address concerns about 'uncomfortably high' food inflation amid the broader economic upswing.

Economists' Perspectives

Economists share their perspectives on the economic shift, emphasising the potential rebalancing from services to goods. Anticipating a continuation of the RBI's hawkish approach, analysts underline the central bank's focus on sustaining growth while navigating inflation risks.

GDP Boosts Forecasts

The staggering Q2 GDP figures prompt economists to revise their full-year forecasts for fiscal year 2023-24. While acknowledging the broad-based pickup across non-agricultural sectors, they foresee a moderation in second-half growth. The consensus remains, however, that India's GDP growth remains robust, with expectations of upward revisions for the full- year figures.

Catalysts Behind Growth

Analysts attribute the GDP growth to factors such as government consumption, fixed-asset investments, lower input prices, and inventory restocking. The double-digit growth in key sectors like manufacturing, electricity, and mining further supports the overall economic momentum.

As India's economic trajectory continues its upward trajectory, the RBI faces the challenge of balancing growth and inflation. The Q2 GDP surprise sets the stage for a crucial monetary policy decision, with experts closely watching for signals of the central bank's stance in navigating the evolving economic landscape.