India poised to become new growth engine of world, says RBI Governor

India is poised to become the new growth engine of the world, Reserve Bank of India Governor Shaktikanta Das said on Friday as the central bank retained the country's GDP growth forecast at 6.5 per cent for 2023-24, notwithstanding the slowing global economy.

Invoking Kautilya's Arthashastra, Das said macroeconomic stability and inclusive growth are the fundamental principles underlying a country's progress.

"The policy mix that we have pursued during the recent years of multiple and unparalleled shocks has fostered macroeconomic and financial stability," he said, while unveiling the bi-monthly monetary policy review.

He said the external sector also remains eminently manageable. Das further said the twin balance sheet stress that was encountered a decade ago has now been replaced by a twin balance sheet advantage with healthier balance sheets of both banks and the corporate.

"India is poised to become the new growth engine of the world," he said, observing the global economy is slowing under the impact of tight financial conditions, protracted geopolitical tensions and increasing geo-economic fragmentation.

Global trade is contracting, headline inflation is easing but rules above the target in major economies.

"In contrast to global trends, domestic economic activity exhibits resilience on the back of strong domestic demand," the governor said.

Domestic demand conditions are expected to benefit from sustained buoyancy in services, revival in rural demand, consumer and business optimism, the government's thrust on capex, and healthy balance sheets of banks and corporates.

"Headwinds from global factors like geopolitical tensions, volatile financial markets and energy prices, and climate shocks pose risks to the growth outlook," he added.

Taking all such factors into consideration, the RBI projected the real GDP growth for 2023-24 at 6.5 per cent, with Q2 at 6.5 per cent, Q3 at 6 per cent, and Q4 at 5.7 per cent, with risks evenly balanced.

Real GDP growth for the first quarter in 2024-25 is projected at 6.6 per cent.

In the August monetary policy too, the GDP growth was projected at 6.5 per cent.

The governor also said the Indian economy is forging ahead in a challenging global environment, drawing strength from its underlying macroeconomic fundamentals and buffers.

While growth remains on track, the declining trend in inflation was interrupted in July-August 2023 due to price shocks in certain food items, he said.

The Reserve Bank has also retained the projection for Consumer Price Index-based retail inflation at 5.4 per cent for the current financial year.

"Our commitment to ensure financial stability reinforces our emphasis on price stability and anchoring of inflation expectations," Das said.

The RBI expects the inflation to ease in September from high levels observed in July and August on back of cooling prices of vegetables, and the decision of the government to cut prices of cooking gas (LPG).

CPI inflation is projected at 5.4 per cent for 2023-24, with Q2 at 6.4 per cent, Q3 at 5.6 per cent and Q4 at 5.2 per cent, with risks evenly balanced. CPI inflation for the first quarter in 2024-25 is projected at 5.2 per cent.