Updated March 20th, 2024 at 18:13 IST

RBI on current Indian economy: Key takeaways from central bank’s bulletin

The high visibility of structural demand and healthier corporate and bank balance sheets will likely be galvanising forces.

Reported by: Rajat Mishra
Retail market boom | Image:Unsplash
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India economic resurgence: The Reserve Bank of India  (RBI), in its latest bulletin, has revealed that investment-driven momentum and private capital expenditure in India are expected to witness a surge. 
As per RBI, a robust surge in aggregate demand was being powered by a host of investments panning across sectors. The revival of private capex has long been an area of concern. 
“Aggregate demand in the third quarter of 2023-24 was investment-driven, with some indications of a revival of the private capex cycle. Capacity utilisation in several sectors has reached a point where there have to be new investments,” the RBI said.

Robust Aggregate Demand
According to the RBI, central public sector entities have achieved an impressive 92 per cent of their capital expenditure target for the fiscal year 2023-24 by February 2024, a sign of thriving investment-led aggregate demand in the economy. The central bank also highlighted capacity utilisation and said that there is a strong case for expansion and investments by corporates as capacity utilisation in several sectors has reached a point where there has to be new investments.
“The high visibility of structural demand and healthier corporate and bank balance sheets will likely be galvanising forces,” the RBI further added.

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Private Consumption Challenges

The challenge emerges from the private consumption front, where growth remains tepid, even during the festive season. Moreover, a contraction in government final consumption also posed a challenge.  The RBI in its report added that market research indicates that the domestic Fast-Moving Consumer Goods (FMCG) sector may experience moderate growth over the next six months.

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Robust Manufacturing Sector 
On the industrial front, the manufacturing sector emerges as a major growth driver buoyed by sustained profitability amidst falling input costs. Across various sectors—from automobiles to pharmaceuticals—companies report improved interest coverage ratios, fueling optimism for sustained growth.
“The manufacturing base has also been expanding. For instance, the entire semiconductor chip value chain – design; packaging and fabrication – has made its presence in the country,” the RBI added in its bulletin. 
Similarly, construction activity thrives, while the hospitality and retail sectors undergo transformative shifts. Despite agricultural challenges stemming from erratic monsoons, a silver lining emerges, with favourable conditions anticipated going forward.

According to RBI, the hospitality sector is set to witness a healthy revenue growth, boosted by a modest increase in average room rates (ARR) of 5-7 per cent and occupancy at 73-74 per cent. Similarly, the resurgence of global capability centres (GCCs) has also helped demand for grade-A offices to expand strongly. Higher traction in overall leasing has aided the performance of listed companies in this segment.

Surging Stock Markets 
Financial markets mirror this narrative of resurgence, with stocks riding an exhilarating bull run and the Indian rupee lying in newfound stability. Strong investor appetite for corporate bonds underscores growing confidence, propelled by India's inclusion in global bond indices.

“While large caps are gaining, mid-and small-caps are rising even faster, with hints of froth and a spreading equity culture. Foreign investors account for their smallest share of the Indian stock market in a decade (at 16.3 per cent), reflecting increased buying by domestic institutions, including mutual funds,” the report added.

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Stable Rupee 
Another worry for the economy- a depreciation rupee- has been in stabilised territory for a very long time. “INR is appreciating and is among the least volatile currencies. The INR has been bolstered by a pick-up in foreign direct investment (FDI) by 11.4 per cent YoY in October-December 2023,” the RBI summarised. 

Similarly, the mergers and acquisitions jumped 78 per cent in terms of deal value in January 2024. Portfolio inflows during April-mid March 2023-24 accounted for a fifth of all such flows to EMEs. The RBI highlighted that strong merger activity and portfolio inflow allude to a stable and strong rupee.

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Published March 20th, 2024 at 18:13 IST