‘Conditions favour extending trend that boosted India’s real GDP growth above 8% from 2021-24’

Conditions are shaping up for an extension of the trend upshift that took India’s average real GDP growth above 8 per cent during 2021-24 even as there is greater confidence now that the descent of retail inflation to the 4 per cent target is imminent, according to an article in RBI’s latest monthly bulletin.

The conditions are apposite, with the credit quality of Indian corporates having strengthened on the back of deleveraged balance sheets, sustained domestic demand and public capital expenditure: rating upgrades have continued to surpass downgrades, said RBI o£cials, including Deputy Governor MD Patra, in the article “State of the Economy”.

RBI Governor Shaktikanta Das, in his statement at the last monetary policy committee meeting held between April 3 to 5, 2024, observed that the Indian economy is growing at a robust pace with an average annual growth of 8 per cent during the last three years.

INVESTMENT CYCLE

“India continues to be the fastest growing major economy in the world, supported by an upturn in investment cycle and revival in manufacturing. Services sector continues to grow at a strong pace,” he said.

RBI o£cials noted that an important development that favours India’s growth ambitions is the evolution of inflation dynamics in recent prints. Starting in January 2024, the softening of headline inflation is providing a tailwind to growth impulses.

Analysis within India’s KLEMS (capital, labour, energy, materials and services) growth accounting framework shows that the contribution of fixed capital stock to the growth of gross value added (GVA) in India has started improving from the low to which it had declined during the pandemic.

GVA GROWTH

“By 2021-22, its contribution to the growth of GVA had recovered to 32 per cent, although there is still catch-up to attain vis-a-vis pre-pandemic levels. If this is augmented by the quality of the capital stock embodied in its composition, the contribution goes up close to 34 per cent,” the authors said. The RBI o£cials underscored that in order to achieve its developmental aspirations over the next three decades, the Indian economy must grow at a rate of 8-10 per annum over the next decade to reap the demographic dividend that started accruing from 2018 and, as calculations show, will last till 2055.

So far, capital deepening is powering the step-up in the growth trajectory, led by sustained public investment, and supported by productivity improvements, they added.

The o£cials opined that for India to harness its favourable demographics and achieve the escape velocity required to breach the low middle income barrier, the developmental strategy over the next few decades must centre around extracting the maximum possible contribution of its young and rising labour force to the growth of GVA.

The top court noted that the construction of four dams will not only be detrimental to wildlife and population in Kalesar but also to the ecosystem and even the purpose for which the dams are proposed would not be achieved.

“Issue notice. We further direct that no steps shall be taken for construction of dams unless an order is passed by this court,” the bench said.

The top court was hearing a