Agriculture, services aid growth, macro factors volatile: RBI
MUMBAI: RBI has expressed guarded optimism about the country's economic trajectory, even as it acknowledged mounting global uncertainties and domestic pressures.
In its state of the economy report, the central bank noted that economic activity remains resilient, supported by improved prospects for the kharif crop, sustained momentum in services, and modest industrial growth.
Yet, the macroeconomic environment, both globally and domestically, remains volatile.
The report points to a broad-based moderation in economic indicators. Industrial activity has weakened, with the Index of Industrial Production falling to a nine-month low in May. Demand-side signals also softened, including a slowdown in petroleum consumption and a marginal decline in electricity use. Bank credit growth lost steam across key sectors, with lending by non-bank financial companies contracting and personal loans decelerating.
Public finances showed strain, marked by widening state deficits and a sharp reduction in Union govt grants.
Inflation pressures have resurfaced. Core inflation ticked up in June due to rising personal care costs, while a rebound in onion prices reversed earlier corrections in food inflation. RBI cautioned that "oil price surges have often been associated with a downturn in economic growth and worsening trade and current account balances," adding that "oil price volatility can be debilitating for the Indian economy".
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Rising oil import dependence, it noted, could amplify long-term inflation risks.
The external sector has turned fragile. Capital inflows were inadequate to finance the current account deficit, leading to a $5-billion fall in forex reserves. The rupee weakened against the dollar in June, and external commercial borrowing registrations dropped on a year-on-year basis.
Labour market signals were mixed. High demand for MGNREGS jobs pointed to rural employment stress, while the labour force participation rate and worker population ratio declined slightly, particularly in rural areas. Household inflation expectations remain elevated and divergent.
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