India’s growth has exceeded most forecasts and the economy is poised for a long haul of higher growth, Reserve Bank of India governor Shaktikanta Das said.
Speaking at an event organized by the Confederation of Indian Industry (CII) at Davos on Wednesday, Das gave a broad overview of the Indian economy and said, “After clocking real GDP growth of 7.2% in 2022-23, it is expected to grow by 7.3% during 2023-24. With strong domestic demand conditions, India remains the fastest-growing major economy and is now the fifth-largest economy in the world.”
The RBI governor claimed that in purchasing power parity (PPP) terms, India is already the third-largest economy.
The Indian economy presents a picture of confidence, positivity, and optimism amid an uncertain and challenging global macroeconomic environment, the RBI governor said.
Das attributed the positive transformation in the medium and long-term growth prospects of the Indian economy to the government’s implementation of structural reforms in recent years.
Asserting that strong domestic demand remains the main driver of growth in India, he said, “Higher reliance on domestic demand cushioned India from multiple external headwinds.”
On macroeconomic stability in the country, Das said, “We have emerged from the recent spate of shocks with stronger fundamentals—inflation is easing; bank and corporate balance sheets are stronger than before; fiscal consolidation is on course and its quality has improved; and the external balances are eminently manageable with strong forex reserves.”
He added that core inflation has also gradually and steadily moderated, while proactive supply-side interventions by the government have also played a key role in handling food price shocks.
The RBI governor anticipated an average CPI inflation of 4.5% for the upcoming year, expressing the central bank’s commitment and confidence in achieving the 4% target at the earliest opportunity.
Das noted that the services sector, which contributes the largest share to total value addition in the economy, is fast adopting new technologies to improve delivery, reach, and competitiveness.
“The external demand for India’s services is surging and diversifying rapidly from information technology-related services to other professional services like business development, research and development, professional management, accountancy, and legal services on the back of rising competitiveness,” he said.
Das highlighted that the non-banking financial companies (NBFC) sector is also reflecting sound performance parameters.
“Improved balance sheets of financial institutions are providing good support to durable and broad-based credit growth. Moreover, macro stress tests undertaken to assess the resilience of banks under adverse stress scenarios show that their capital ratios will remain sufficiently above the regulatory minimum,” he said.
Addressing the recent RBI move to check unsecured retail loans, Das said the central bank took pre-emptive policy actions to prevent potential build-up of risks and safeguard financial stability.
Turning attention to financial innovation, Das emphasized that India’s fintech ecosystem is currently the world’s third-largest.
The adoption rate of fintech in India stands at 87%, well above the global average of 67%, Das noted.
The fintech market is projected to reach $150 billion by 2025, up from $50 billion in 2021, he highlighted.
The RBI governor credited the fintech growth to the JAM trinity—a combination of bank accounts (Jan Dhan); Aadhaar (India’s biometric identity system that provides a single and portable proof of identity); and Mobile phone numbers.
Highlighting the success of Unified Payments Interface (UPI), which he called a game changer for digital payments, Das said linkage of credit lines to UPI would further enhance its versatility.
“Our approach to fintech ecosystem is customer-centric, with a focus on ensuring effective oversight, ethical conduct, risk management, and encouraging self-regulation by the fintechs themselves by establishing a self-regulatory organization,” Das said.
Drawing a contrast with the global economy which is confronted with multiple challenges, Das said, “As far as the Indian economy is concerned, it is now poised for a long haul of higher growth. There are challenges, but they have to be dealt with effectively. With a confluence of factors in its favor, the confidence on India’s prospects is at an all-time high. We have to make this happen in reality. All stakeholders need to be unambiguously focused and take measures to support this journey.”
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