Stronger Than Expected Growth For Global Economy And Continued Momentum For Indian Economy, Says RBI Bulletin

The Reserve Bank of India (RBI) has released the monthly bulletin for February 2024. A likelihood for “stronger than expected growth” for the global economy with “broadly balanced” risks and an Indian economy which continues to exhibit the momentum, which was achieved in the first half of 2023-24, based on the “high frequency indicators” have been pointed out. Core inflation is said to be at the lowest since October 2019; Consumer Price Inflation in January has come down from the earlier rise and a renewed round of capex from the corporate sector could energise the next level of growth, the RBI said.

There is a tight decline of Net Foreign Direct Investment flows into India by 55.2 percent to $9.69 billion in the months of April-December 2023, from $21.63 billion in the same period in the year 2022. This has been attributed mainly to a surge in repatriation of equity capital. The Foreign Direct Investment (FDI) to India stood at $19.23 billion and the outflow stood at $9.54 billion during the April-December period in 2023. Looking back at the corresponding period in 2022, the FDI inflows were at $32.68 billion and the outflows stood at $11.05 billion.

In the “State of Economy,” the RBI said that almost 65 percent of the FDI equity inflows were from manufacturing, electricity and other energy sectors, transport, financial services, and retail and wholesale trade sectors. Countries that accounted for more than three-fourths of equity flows during the same period were Singapore, Mauritius, the US, Japan, the UAE, and the Netherlands. As per the fDI intelligence, globally announced green field FDI projects went up to 174 in 2023 from 156 in 2022. The FDI sectors which were most popular were the ones associated with green energy and digitisation. This, the bulletin said, reflected a structural shift that the world economy was undergoing. The fDi Intelligence is a specialist division that gives a comprehensive picture of services related to foreign direct investment.

A modest rise in the global FDI, with the support of retracting inflation and the ensuing fall in the cost of borrowings is expected by the United Nations Conference on Trade and Development (UNCTAD). The risks have been identified in the form of “geopolitical tensions, heightened macroeconomic uncertainties and deepened geo-fragmentation concerns.”

The bulletin also cited that India currently has the “fourth largest foreign exchange reserves in the world.” India was the sixth during the Covid-19 pandemic. As for the payment systems, strong expansion has been marked in major digital payment modes during the onset of 2024 with the Unified Payment Interface (UPI) being adopted internationally and nationally. The bulletin further noted that “domestic economic activity is holding up well and is expected to be backed by the momentum in investment demand, optimistic business sentiments and rising consumer confidence,” and that the real GDP growth has been kept at 7 percent for the year 2024-25.