India has emerged from the pandemic years "stronger than initially thought", with a steady gathering of momentum since the second quarter of the current financial year, even as global growth is set to slow down or even enter recession in 2023 as financial markets wager, the Reserve Bank of India (RBI) has said in its monthly bulletin for March 2023.
The central bank says as suggested by the NSO’s end-February data, the Indian economy is "intrinsically better positioned" than others, thanks to demonstrated resilience and its reliance on domestic drivers.
On the year-on-year growth rates not reflecting this pick-up, the RBI experts cite that by construction they are saddled with statistical base effects, and instead suggest a sequential slowing down through successive quarters of 2022-23 to an unsuspecting reader.
"Currently available forecasts of India’s real GDP growth for 2023-24, including those of the RBI, settle between 6.0 and 6.5 per cent. But, what if at least 50 per cent of the ₹35,000 crore of tax relief proposed in the Union Budget is used by taxpayers for consumption and adds to private final consumption expenditure," says the RBI.
India’s real GDP can go up from ₹159.7 lakh crore in 2022-23 to not just ₹169.7 lakh crore in 2023-24 as is currently being projected but to ₹170.9 lakh crore. "Also, unlike the global economy, India would not slow down – it would maintain the pace of expansion achieved in 2022-23. We remain optimistic," says the report.
On CPI, the RBI report says the present method of CPI compilation in India encompasses aggregation of CPI across sectors and States/UTs for item-level indices as well as for indices at sub-group/group and all-India levels.
This method, at times, creates challenges for use of the index for monetary policy since the inflation based on it reflects, in addition to changes in retail prices of goods and services, "data kinks" that emanate from the aggregation methodology – the January and February 2023 CPI prints are the latest examples, the RBI opines. The central bank also suggested an alternate aggregation method, in conformity with international standards.
On application of the growth-at-risk (GaR) framework for Indian GDP, the RBI experts write that the GaR framework, by assessing the entire distribution of future GDP growth, helps in quantifying the likelihood of tail risk scenarios i.e. lower quantiles of growth. "The accessibility of forward-looking information is vital to the success of macroeconomic policies. GaR analysis offers an alternative baseline for evaluating the gravity of catastrophic situations because it can estimate the entire distribution of future GDP growth."
On pricing dynamics of subnational market borrowings known as State Government Securities (SGS) in India, the experts highlight the need for states to follow measures addressing supply concerns of the market by reducing pre-emptive over-borrowing and better cash management practices. "Pre-emptive overborrowing resulting in larger investments in ITBs has its associated cost in terms of the higher cost of borrowing as well as significant negative carry costs. This reflects the need for improved fiscal marksmanship by states."