Indian Economy Witnessing Acceleration, Corporate Sales Growth Robust Says RBI

In an unsettled international environment, incoming data configure favourable conditions for an acceleration of activity in the Indian economy, the Reserve Bank Of India (RBI) noted in its latest Annual Report released today. The initial lull in the progress of the southwest monsoon got reversed, including in the spatial dispersion, and in response, cropping gaps are closing. Overall, agricultural production is likely to remain strong for the third consecutive year. Meanwhile, growth impulses in industry are strengthening, propelled by a sustained pick-up in manufacturing and mining activity, especially coal. Corporates are reporting robust sales growth and improvement in profitability as pricing power returns. Services sector activity is also set to gather pace, as high frequency indicators suggest. Revenue-earning freight traffic of railways has picked up, driven by stepped-up movement in coal, fertiliser and cement.

The uptrend in construction is expected to continue going forward, given the government's push for infrastructure - affordable housing, roads, and ports - and the robust expansion in the production of cement. Underlying this reinvigoration is the steady expansion in aggregate demand, fuelled by consumption (both urban and rural), investment and exports. Over the rest of 2018-19, the acceleration of growth that commenced in 2017-18:H2 is expected to be consolidated and built upon. Keeping in view the evolving economic conditions, real GDP growth for 2018-19 is expected to increase to 7.4% from 6.7% in the previous year, with risks evenly balanced.

The Indian economy exhibited resilience during 2017-18, with upturns in investment and construction. Inflation eased on a year-on-year basis in an environment characterised by high variability. In the evolution of monetary aggregates, currency in circulation surpassed its pre-demonetisation level while credit growth revived to double digits from a historic low in the previous year. Domestic financial markets were broadly stable, with rallies in equity markets and intermittent corrections, hardening bond yields, the rupee trading with a generally appreciating bias except towards the close of the year and ample liquidity in money markets. The implementation of GST achieved another important milestone towards an efficient indirect tax structure. On the external front, the current account deficit was comfortably financed with accretions to foreign exchange reserves.

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