India’s Macroeconomic Resilience Amid Global Uncertainty

October 20, 2023

Amidst global uncertainty, India is gaining momentum in its economic performance, thanks to easing inflation and a stable rupee. The Reserve Bank of India (RBI) highlighted these positive trends in its October bulletin, signaling a robust macroeconomic foundation.

Easing Inflation and Positive Impact

In September, retail inflation in India exhibited a notable moderation, marking a decline from its peak in July. This decline has had a positive impact on the country’s macroeconomic fundamentals, even amidst a global economic slowdown in the third quarter of 2023.

Broad-Based Momentum

The RBI’s ‘State of the Economy’ article, featured in the latest RBI Bulletin, underscores India’s encouraging performance in high-frequency indicators. This reflects a broad-based gain in momentum across various sectors. Capital-intensive industries, in particular, have experienced increased traction due to deleveraging and higher capacity utilization.

Stable Indian Rupee

The article also notes the current stability of the Indian rupee (INR), which is displaying low volatility. This stability is attributed, in part, to the moderation in inflation from its peak in July, which has reinforced India’s macroeconomic fundamentals.

Decline in Retail Inflation

The Consumer Price Index (CPI)-based retail inflation dropped to a three-month low of 5.02% annually in September. This decline can be attributed to moderation in the prices of vegetables and fuel, bringing it back within the comfort level of the Reserve Bank. In comparison, August recorded a CPI-based inflation rate of 6.83%, and September 2022 saw it at 7.41%, with the peak in July at 7.44%.

Global Economic Scenario

The article also highlights the global economic scenario, where a slowdown in global growth has been observed from the third quarter of the current year. This slowdown is primarily attributed to weak manufacturing activity and tightened financial conditions in advanced economies. However, some emerging market economies have managed to deliver growth surprises.

Risks on the Horizon

Despite these developments, the article identifies rising yields and surging crude oil prices as proximate risks to global growth. These factors could potentially pose challenges to the global economic outlook.

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