RBI Governor Shaktikanta Das said on Wednesday (May 24) that India’s GDP growth in 2022-23 could have been more than the advance estimate of 7 per cent, riding on the economic momentum in the third and fourth quarters of that fiscal.
The second advance estimate released by the National Statistical Office (NSO) in February had said the economy was estimated to grow at 7 per cent in 2022-23 against 8.7 per cent in the preceding fiscal.
“There is a possibility that it could be even more…It will not be a surprise if the GDP growth of last year comes slightly above 7 per cent,” Das said at a Confederation of Indian Industry (CII) event in Delhi. Provisional Annual Estimates for 2022-23 will be released on May 31, 2023.
“It initially appeared in the third quarter that there was a pent-up demand which was supporting the economic activity. But all the economic indicators in the fourth quarter of the last financial year show that economic activities sustained momentum.
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“In fact, all the high-frequency indicators — around 70 of them — which we monitored in the Reserve Bank of India — almost in all of these high-frequency indicators, the momentum was maintained in the fourth quarter. So therefore, we should not be surprised if the growth is slightly more than 7 per cent,” he explained.
For the current financial year, he said the RBI has projected a growth rate of 6.5 per cent.
About the global scenario, he said the coexistence of high inflation and banking stress is complicating the responses of central banks, as they face or trade off between the risk of either straining financial markets or having to tolerate a longer period of high inflation.
“Amidst these global uncertainties, the Indian banking system remains stable and resilient with strong capital and liquidity positions, improving asset quality, better provisioning coverage and improved profitability,” he said.
Das said the decision to tweak policy rates was not in his hand as he himself is driven by the situation on the ground.
In April, the RBI in a surprise move hit the pause button and decided to keep the key benchmark policy rate at 6.5 per cent. Before that, it was on a rate hiking spree, raising the repo rate by 250 basis points since May 2022.
Das said there is a suggestion that RBI will take a pause in the coming monetary policy meetings. “It’s not in my hands. It all depends on the situation on the ground. I am driven by what’s happening on the ground. What is the outlook on the ground? What are the trends? How is the inflation build-up or the inflation softening? So, it’s all there,” he elaborated.
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The last decision to hold rates should be seen as a pause, and not as a pivot, he said. Citing an example, Das said Canada, after pausing, increased rates to deal with inflation.
On global growth, he said the global economy is mired by geopolitical uncertainty, elevated inflation, volatile financial markets — including banking sector stress — food insecurity and debt distress, among others.
On the upside, there has been a slow upturn in global growth, easing of supply chains, moderation of inflation, normalisation of financial markets and reopening of Chinese markets, which have all improved sentiments, but the uncertainty continues, he said.
Amid global churn, the Indian economy has shown resilience and has created requisite buffers to meet geopolitical and domestic challenges. He assured that the country has sufficient forex reserves, and the central bank has maintained the exchange rate of the rupee.
Regarding the internationalisation of the rupee, he said, the RBI has allowed international trade settlement in the rupee in 18 countries. As many as 17 banks have opened 30 special vostro accounts.
Sberbank and VTB Bank — the largest and second-largest banks of Russia, respectively — are the first foreign lenders to receive the approval after the RBI announced the guidelines on overseas trade in the rupee in July last year.
Another Russian bank, Gazprom, which does not have its unit in India, has also opened this account with Kolkata-based UCO Bank.
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A vostro account is a bank account held by a domestic bank for a foreign bank, denominated in the domestic currency of the former. The rupee Vostro Account specifically holds the foreign entity’s deposits in Indian rupees at the Indian bank.
Das emphasised the urgent need to ensure availability and access to technology.
He stressed that the future belongs to technology and that industry has a major role to play in technology development, and the public and the private sectors should work together to be technology ready.
Regarding liquidity, he said the central bank would maintain adequate liquidity for meeting the productive requirements of the economy and ensure the stability of the exchange rate.
On FDI, he said he expects an uptick in foreign capital flow in May.
He also informed the gathering that the RBI is fine-tuning the Central Bank Digital Currency (CBDC) architecture based on the experience so far. The RBI, on November 1 and December 1, 2022, launched the CBDC for wholesale and retail, respectively.
While the use case of the wholesale CBDC is limited to the settlement of secondary market transactions in government securities, the retail e-rupee is being piloted within a closed user group (CUG) comprising participating customers and merchants.
The first phase included four banks — SBI, ICICI Bank, Yes Bank, and IDFC First Bank. Subsequently, four other lenders — Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank — joined.
The CBDC is expected to make the interbank market more efficient, and settlements in e-rupee can reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk.
(With agency inputs)