Indian economy resilient but impact of the Covid still there: RBI annual report

The Indian economy showed strong resilience in the preceding fiscal year, ranking among the major economies with the fastest growth rates. However, the Reserve Bank of India stated in its annual report that declining consumption in the second half of FY23, muted rural demand, and persistent cost pressures remained a drag.

In the second half of the fiscal year, the Indian economy's growth slowed. RBI attributed this to adverse base effects, declining private consumption demand brought on by high inflation, a slowdown in export growth, and ongoing input cost pressures.

The sluggish growth of entry-level, price-sensitive vehicles in comparison to the rebound in passenger automobiles may be the cause of the uneven recovery in consumption. The ongoing gap in two-wheeler sales, 40% of which go to rural India, signalled that rural demand was also weak.

The average annual wage rise for agricultural and non-agricultural labourers for FY23 was 5.8% and 4.9%, respectively.

According to RBI, rural demand, which was adversely impacted by the second wave of the Covid-19 outbreak a year ago, has begun to rebound. However, despite a clear increase in economic activity, it claimed that real rural wage growth had essentially stagnated in FY23.

Despite a yearly reduction in job demand under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), it was still higher than it was prior to the pandemic in the previous fiscal year. According to the RBI, this shows that the recovery, particularly in the unorganised sector of the economy, is still in progress.

In spite of significant global headwinds, the RBI anticipates that the Indian economy will have grown by 7% in real GDP in the preceding fiscal year. In each of the last five years, India has contributed an average of over 12% to global growth.