With India’s economic growth averaging over 8 per cent in 2021-24 as compared to 7 per cent during 2003-19, the Reserve Bank of India’s state of the economy report said there is a shift in the trend growth rate post the pandemic, which is powered by domestic drivers.
“There is increasing evidence that in the post-pandemic years, a trend upshift is taking shape, which is shifting India’s growth trajectory from the 2003-19 average of 7 per cent to the 2021-24 average of 8 per cent or even more, powered by domestic drivers,” the report authored by RBI staffers, including deputy governor Michael Patra.
Views of the report are those of the authors and do not represent the views of RBI, it was clarified.
The report said that India’s real GDP growth of 8.2 per cent in FY24, which is the highest rate since 2016-17, barring the post-COVID rebound in 2021-22, has “stunned all projections”.
It said that recent indicators suggest that private consumption is resuming its role as the main driver of demand and is getting broad-based to include rural consumers.
At the same time, it said a strong revival in private investment has to become the most important factor driving growth in the years to come, especially as public finances consolidate.
“Government consumption spending picked up modestly towards the close of 2023-24, reflecting the sustained focus on capital expenditure which is a positive for the medium-term prospects of the economy and investor sentiment,” the state of the economy report said.
Net exports, which has improved their contribution to GDP, especially high-end manufacturing, is a “pleasant surprise”.
The report said that high-frequency indicators suggest the real GDP growth in Q1 of FY25 is broadly maintaining the pace it achieved in the preceding quarter.
“Available high frequency indicators for the services sector recorded expansion in May 2024 indicating sustained momentum in economic activity,” it said.
The report also highlighted a structural break in the formation of GDP since the pandemic.
“First quarter GDP has tended to record some loss of momentum relative to other quarters since the onset of the pandemic. Hence, some moderation in speed relative to the growth of 7.8 per cent in Q4:2023-24 can be expected in the actual outturn when the National Statistical Office (NSO) releases its estimate at the end of August,” it said.
Commenting that the silver lining for the trajectory of GDP in 2024-25 is halting the descent of headline inflation in its May 2024 reading, the report said the fifth consecutive month of decline in inflation, albeit grudging, opens up space for aggregate demand to benefit from price/ cost reductions.
The report reiterated RBI’s view that as long as food price pressures persist the goal of aligning inflation with its target remains a work in progress.
Acknowledging that headline inflation is gradually easing, driven by sustained softening of its core component, the path of disinflation is interrupted by volatile and elevated food prices.
While CPI inflation softened to 4.7 per cent in May 2024, the lowest in the last 12 months, food inflation (y-o-y) remained unchanged at 7.9 per cent in May.
High on hope
> GDP growth averaging over 8% in 2021-24 than 7% in 2003-19
> Real GDP growth in FY24 at 8.2% has ‘stunned all projections’
> Private consumption resuming its role as main driver of demand
> Govt focus on capex a positive for medium-term prospects
> Strong revival in private investment to drive growth ahead
 "Trend upshift in growth post pandemic, rises to 8% in 2021-24: RBI report")
