India's economic resilience has strengthened despite facing significant external challenges since 2020, according to Ashima Goyal, a member of the Reserve Bank Monetary Policy Committee (MPC). In an interview with PTI on Monday, Goyal highlighted the country's economic diversity, ample buffers, and feasible reforms as key factors enabling countercyclical policies. Despite external shocks such as the Russia-Ukraine war, Israel-Hamas conflict, fluctuating oil prices, and Houthi attacks, India's macro-fundamentals have shown improvement during this period.
Goyal emphasized the stability of the rupee, attributing it to India's economic diversity, robust buffers, and effective reforms that have facilitated countercyclical policies. The nation's ability to implement such policies has helped smooth the impact of external shocks on its economy. Projections suggest India's economy is set to grow by 7.3% in the current fiscal year, surpassing the 7.2% growth in 2022-23.
In the global context, the International Monetary Fund's (IMF) World Economic Outlook indicates a slowdown in global growth from 3.5% in 2022 to 3% in 2023 and further to 2.9% in 2024. The recent escalation in tensions around the Bab-el-Mandeb Strait, a critical shipping route, has led to delays and increased costs for shippers using alternative routes.
Addressing concerns about inflation, Goyal pointed out that recent spikes in commodity prices have been short-term and haven't disrupted the steady softening of core inflation toward the Reserve Bank of India's (RBI) target of 4%. She anticipates the economy approaching this inflation target in 2024 as more businesses and consumers internalize it. Despite challenges like the pandemic, supply chain disruptions, and war-related oil price increases, the MPC has demonstrated effective inflation control.
While retail inflation rose at the fastest pace in four months in December 2023, reaching 5.69%, Goyal emphasized the MPC's commitment to maintaining retail inflation at 4%, with a margin of 2% on either side. On the subject of fiscal deficit targets, Goyal suggested that tax buoyancy from higher growth, combined with tax reform and counter-cyclical fiscal policies, offers India a potential escape from a history of higher deficits. She argued that fiscal consolidation would strengthen macroeconomic fundamentals, reduce risks, and create space to respond to future shocks without compromising growth. Goyal concluded that the announced medium-term fiscal deficit is eminently feasible and would not hinder growth but rather make room for increased private investment, particularly in smart green public infrastructure projects.
