Fresh capex by India Inc to fuel next leg of growth: RBI bulletin

Noting that the Indian economy is sustaining the momentum achieved in the first half of the ongoing financial year, the Reserve Bank of India in the February edition of its monthly bulletin said that expectations of a fresh round of capital expenditure by the corporate sector will likely fuel the next leg of growth.

RBI Governor Shaktikanta Das said that investment cycle in India is gaining steam, thanks to sustained thrust on government capex, increasing capacity utilisation, rising flow of resources to the commercial
sector, and policy support from schemes such as production linked incentive (PLI scheme).


"Expectations for a fresh round of capex by the corporate sector to take the baton from the
government and fuel the next leg of growth are mounting," the central bank said in the 'State of the Economy' article.

RBI's survey shows that t investment intentions of private corporates remain upbeat and both services
and infrastructure firms are optimistic about overall business conditions.

RBI on Inflation

RBI noted that headline retail inflation in India, after moderating to 4.9 per cent in October, rose to 5.7 per cent in December due to food inflation, mostly vegetables.

"The softening in core inflation (CPI ex food and fuel) continued across both goods and services, reflecting the cumulative impact of monetary policy actions as well as significant softening in commodity prices," Das wrote.

The governor flagged the uncertainties in food prices which continue to impinge on the headline inflation trajectory.

"The inflation trajectory, going forward, would be shaped by the outlook on food inflation, about which there is considerable uncertainty," Das wrote.

RBI on Indian economy's growth

Citing data, RBI said that domestic economic activity in India remained strong. The Central government's first advance estimate pegs India's real gross domestic product (GDP) to grow at 7.3 per cent in FY24, marking the third consecutive year of 7 per cent+ growth.

"Going forward, the momentum of economic activity witnessed during 2023-24 is expected to continue in the next year (2024-25)," Das said.

On the external sector front, RBI noted that India's current account deficit (CAD) dropped to 1 per cent of GDP in the second quarter of FY24, down from 3.8 per cent in the same quarter in the preceeding financial year. Given India's position in the world software business and its stature as the largest recipient of remittances globally, the RBI expects CAD to be 'eminently manageable' in FY24 and FY25.