 "Low inflation, higher infra investment key for spurring growth: RBI article")
Amid global challenges, controlling inflation, improving infrastructure, and macroeconomic stability are critical for reviving animal spirits and spurring growth, said an article published in the RBI Bulletin on Tuesday.
The article titled 'State of the Economy' notes that the Indian economy consolidated its recovery, with most constituents surpassing pre-pandemic levels of activity.
It said clouds of geopolitical conflict in Europe shroud global economic prospects, with risks slanted down.
Commodity prices remain volatile at elevated levels, and supply chain disruptions got worsened. Inflation pressures have heightened across geographies, and central banks are aggressively tightening monetary policy and liquidity conditions.
"In this hostile international environment, the Indian economy consolidated the path of recovery," it said, and highlighted factors like traction in activities in contact-intensive services, consumer confidence is inching up, and record GST collections.
Inflation pressures, it said, became increasingly generalised across commodity groups in the April 2022 print of the consumer price index (CPI) resulting in a sharp spike in headline inflation to 7.8 per cent well above the upper tolerance band.
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The article said India faces challenges in building from the scars of the pandemic through larger investments in health and productivity of the human capital.
With an acceleration in the pace of digitalisation, the footprint of the unicorn ecosystem in India is expanding, reflecting a rapidly changing economy.
In order to achieve a higher growth path on a sustainable basis, private investment needs to be encouraged through higher capital expenditure by the government which crowds in private investment.
"Improving infrastructure, ensuring low and stable inflation and maintaining macroeconomic stability are critical for reviving animal spirits and spurring growth," the article said.
"The global growth outlook appears grim as geopolitical tensions linger, commodity prices remain elevated and withdrawal of monetary accommodation gathers speed," it said.
Emerging economies face risks of capital outflows and higher commodity prices feeding into inflation prints.
The central bank, however, said the views expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India (RBI).
In an off-cycle monetary policy review, the RBI raised the key lending rate by 40 basis points to tame inflation.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)