Structural reforms key to sustain growth: RBI

- Inflation trajectory may decline to 5.2%

- Monetary policy sticks to accommodation

- CAD expected to remain moderate

- CBDC pilots to be expanded in retail, wholesale

Mumbai: The Reserve Bank of India (RBI) on Tuesday said that India’s growth momentum is likely to continue in 2023-24 even as it made a case for pushing structural reforms to deal with the geo-political developments and also to achieve sustained growth in the medium-term.

The Reserve Bank’s annual report flagged slowing global growth, protracted geo-political tensions and a possible upsurge in financial market volatility as possible downside risks to growth.

The report notes that volatility has ebbed in global financial markets and risks to financial stability from the failure of banks in some advanced economies (AEs) in March 2023 have eased. Resolute policy actions have stemmed the tide of confidence runs for now.

"Amidst strong global headwinds, the Indian economy is expected to have recorded a growth of 7.0 per cent in real GDP in 2022-23," it said. A sustained recovery in discretionary spending, particularly in contact intensive services, restoration of consumer confidence, high festival season spending after two consecutive years of Covid-19 induced isolation and the government's thrust on capex provided impetus to the growth momentum.

In the second half of the year, however, the pace of year-on-year growth moderated because of unfavourable base effects, weakening private consumption demand caused by high inflation, slowdown in export growth and sustained input cost pressures, it said.

"On the back of sound macroeconomic policies, softer commodity prices, a robust financial sector, a healthy corporate sector, continued fiscal policy thrust on quality of government expenditure, and new growth opportunities stemming from global realignment of supply chains, India's growth momentum is likely to be sustained in 2023-24 in an atmosphere of easing inflationary pressures," the report said.

Slowing global growth, protracted geopolitical tensions and a possible upsurge in financial market volatility following new stress events in the global financial system, however, could pose downside risks to growth. "It is important, therefore, to sustain structural reforms to improve India's medium-term growth potential," the 311-page report said.

The RBI also said the conduct of monetary policy will continue to be guided by the objective of achieving the medium-term target for Consumer Price Index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.