By Swati Bhat
MUMBAI (Reuters) – India must aim to sustain the current growth momentum and secure a real GDP growth of at least 7% next fiscal year in an environment of macroeconomic stability, the Reserve Bank of India said in its monthly bulletin released on Thursday.
“In India, potential output is picking up with actual output running above it, although the gap is moderate,” the RBI said in an article titled ‘State of the Economy’.
Earlier this month, India’s statistics office forecast annual growth of 7.3%, the highest among major global economies, for the current fiscal year ending in March.
The RBI’s projection stands at 7% but could be raised during its monetary policy review meeting on Feb. 8.
“Inflation needs to align with the target by the second quarter of the year, as projected, and get anchored there,” the central bank said.
It also stressed the need for financial institutions to strengthen their balance sheets and improve their asset quality and said the ongoing consolidation of fiscal and external balance sheets needs to continue.
“The virtuous thrust to investment from government capex must be partnered, and even led, by the corporate sector, supplemented by foreign direct investment,” the RBI said.
In a separate article on the impact of food prices on inflation, the RBI noted that large and persistent changes in food prices can affect headline inflation lastingly as prices of some components in the food group are seen to satisfy core inflation properties.
“Policymakers need to determine the sources and nature of food price shocks to minimise the risks of over-reacting to transitory shocks as well as of looking through persistent shocks,” it said.
The RBI also noted the pressure on global supply chains due to the recent attacks on commercial ships in the Red Sea trade route, necessitating rerouting via the Cape of Good Hope in South Africa.
“These developments impart considerable uncertainty to the near-term outlook for India’s merchandise trade.”
(Reporting by Swati Bhat; Editing by Savio D’Souza)
