RBI annual report highlights Indian economy’s ‘bright’ outlook, flags food inflation risk

The Reserve Bank of India (RBI) on Thursday said that the outlook for the Indian economy remains bright, supported by continuously strengthening macroeconomic fundamentals, strong financial and corporate sectors, and a resilient external sector.

In its annual report, the central bank said, "The government's continued thrust on capex while pursuing fiscal consolidation and consumer and business optimism augur well for investment and consumption demand."

Food inflation, however, "remains vulnerable to recurring supply shocks which are preventing a quicker alignment of headline inflation with the target," the report said.

The fiscal outlook for states remains favourable, as there is enough fiscal room to increase capital spending. The RBI stated that the implementation of digital tax systems has improved tax collections, and the Centre aims to achieve direct tax revenues of 6.7% of GDP in 2024-25, the highest in thirty years.

Global economy outlook remains beset: RBI

For the global economy, the RBI said that the outlook remains beset by multiple headwinds, including "inflation persisting above target with the pace of disinflation losing momentum; elevated public debt in major systemic economies and their repercussions on the global economy in the case of disorderly adjustments; financial stability risks from the higher for longer interest rates scenario; protracted geopolitical tensions; inefficiencies from geo-economic fragmentation; and accentuated climate shocks.”

The global economy is forecasted to grow by 3.2% in 2024 and 2025, respectively. "Growth in the Advanced Economies (AEs) at 1.7% in 2024 is projected to be marginally higher than that of 1.6% a year ago. Emerging market and developing economies (EMDEs) are projected to expand at 4.2%, below 4.3% a year ago," the report said.