RBI Bulletin says India's H1FY24 growth momentum to persist in H2

"The Indian economy continues to sustain the momentum achieved in the first half of 2023-24, going by high frequency indicators. Expectations of a fresh round of capex by the corporate sector is likely to fuel the next leg of growth," the central bank's monthly State of the Economy article, released on February 20, said.

One basis point is a hundredth of a percentage point.

Deputy Governor Michael Patra, one of the three RBI representatives on the Monetary Policy Committee (MPC), is one of the co-authors of the article.

However, it's important to note that the views expressed in the article do not necessarily align with the central bank's official stance.

These observations in the State of the Economy article come just days before the release of GDP data for October-December 2023, slated for February 29 by the statistics ministry.

The RBI's official forecast suggests that GDP growth is expected to moderate to 6.5 percent in the last quarter of 2023, down from the impressive figure of 7.6 percent recorded from July-September.

The bulletin had previously pegged the October-December 2023 GDP growth rate at 7 percent

"Implicitly, real GDP would have to expand by 7 percent in the fourth quarter for the annual estimate of 7.3 percent to be realised," the RBI Bulletin added on February 20.

Apart from the GDP data for October-December 2023, the statistics ministry is also set to unveil the second advance estimate of growth for the fiscal year 2023-24 on February 29. The initial advance estimate, released on January 5, indicated a growth rate of 7.3 percent, surpassing the forecasts of all economists.

Regarding the capital expenditure (capex) cycle, the assessment in the RBI bulletin suggests that there is a growing anticipation that private sector investments will drive the next phase of growth, supplanting government investments.

This expectation is based on healthy balance sheets and favourable inflation trends, which create a stable environment for companies to strategise and expand their capacities in anticipation of a rise in demand.

"Overall, the corporate sector must get its act together ready to relieve the government of capex heavy lifting and take advantage of the space ceded in financial markets by a lower budgeted borrowing programme and the easing of borrowing costs that has already begun in response to the Interim Budget for 2024-25, driven as it is by capex and consolidation," the State of the Economy article added.

The RBI Bulletin also spoke about the recent drop in retail inflation for January. It decreased by about 0.60 percentage points to reach a three-month low of 5.10 percent, down from 5.69 percent in December 2023. The decline was attributed to a negative momentum of around 0.10 percentage points and a favorable base effect of around 0.50 percentage points.

On February 8, the RBI's MPC kept the policy repo rate steady at 6.5 percent for the sixth consecutive meeting due to concerns about persistent food price shocks.

The committee pledged to maintain an actively disinflationary monetary policy, aiming to align inflation with the medium-term target of 4 percent.

The RBI Bulletin on February 20 emphasized the significance of stable 4 percent inflation for sustaining economic growth.