RBI MPC member Jayanth R Varma optimistic about India's economic growth

RBI MPC member Jayanth R Varma has expressed a more positive outlook for India's economic growth compared to a few months ago, although he acknowledges some concerns. He noted that India's economic growth heavily relies on household spending, while other components of demand are facing challenges. Varma suggested that India should be prepared to accept inflation in the range of 4 to 5 per cent for several quarters as a means to avoid a growth shock.

Consumer confidence improves

He mentioned that his optimism stems from improved consumer confidence and various indicators suggesting ongoing growth momentum. The International Monetary Fund (IMF) recently raised its growth projection for India to 6.3 per cent in October, although Varma pointed out that the outlook remains fragile due to a dependence on household spending and challenges in external demand and private capital expenditure.

Varma also explained that fiscal consolidation involves reducing government spending, which can impact economic growth. India's GDP growth for 2022-23 was 7.2 per cent, lower than the previous year. The Reserve Bank of India projects a 6.5 perc ent GDP growth for the current fiscal year.

Inflation outlook positive

Regarding inflation, Varma mentioned that while August saw high inflation, it is expected to return to the RBI's target of 4 per cent in the coming months. He emphasised that fluctuations in commodity and food prices should be considered in the context of inflation trends and that some level of inflation might be necessary to prevent a negative impact on economic growth.

Reserve Bank of India Governor Shaktikanta Das has reaffirmed the importance of aligning inflation with the 4 per cent target. In its recent meeting, the RBI MPC maintained the benchmark lending rate at 6.5 per cent to control retail inflation.

Varma also discussed the potential impact of high crude oil prices on subsidies and inflation, stating that conflicts in the Middle East pose risks to the global economy. However, he found some reassurance in the stability of oil prices, indicating subdued global demand. He noted that while these conflicts may slow the decline in inflation, they are unlikely to reverse the overall downward trend.

(With PTI Inputs)