India can sustain 8% annual GDP growth and the conducive macroeconomic configuration may become a launching pad for a step-up in the country's growth trajectory, said an article on the 'State of Economy' in the central bank's March Bulletin published on March 19.
Between 2021-24, gross domestic product (GDP) growth has averaged above 8%. The global economy is losing steam, with growth slowing in some of the most resilient economies and high-frequency indicators, pointing to further levelling in the period ahead, said the article authored by a team led by RBI Deputy Governor Michael Debabrata Patra.
Stong fundamentals
In India, real GDP growth was at a six-quarter high in the October-December period of 2023-24, powered by strong momentum, robust indirect taxes, and lower subsidies. The high visibility of structural demand and healthier corporate and bank balance sheets will likely be the galvanising forces for growth going forward. "The world is confronted with large shifts in structure and sentiments, which are either underway or impending," it said.
The article noted that the outlook is shrouded with layers of uncertainty, exacerbated by geopolitical and extreme weather risks and fragmenting forces. By contrast, it said the Indian economy is experiencing a conducive macroeconomic configuration that can be its launching pad for a step-up in its growth trajectory. "Over the period 2021-24, growth has averaged above 8%; and the underlying fundamentals indicate that this can be sustained and even built upon," the authors said.
The current account deficit is modest, external buffers are resilient and fiscal consolidation is into its third consecutive year even as corporations are deleveraging and improving their debt servicing capacity.
According to the article, balance sheets in the financial sector are sound and healthy, providing the wherewithal for intermediating the productive credit needs of a resurgent economy. "Financial markets are reflecting these favourable formations. Capital inflows have resumed strongly as investor interest floods back into India," it said.
Converting favourable factors into opportunities
The authors said technology is offering new growth opportunities to seize by becoming more competitive and efficient. "The time has come to build world-class infrastructure, strong manufacturing bases, a high-quality labour force and global leadership in services to convert these favourable factors into opportunities and strengths over the next few decades," they added.
The article further said the aggregate demand in the third quarter of 2023-24 was investment-driven, with some indications of a revival of the private capex cycle. Capacity utilisation in several sectors has reached a point where there has to be new investments.
"The current financial year will likely see the highest ever length of four-lane roads being constructed, along with the highest ever length of speed or access-controlled highways -- on course to create a world-class road network by 2037," it said. It also noted that the demand outlook for premium consumer businesses is robust and the growth rhythm is expected to persist into the medium-term.
This suggests that there are significant per capita income shifts underway, it said, adding that small-town opportunities are leading to the growth of business across lifestyle segments, with companies that entered these markets enjoying the fruits of being first movers.
