E-Paper
Why MPC’s growth forecast is optimistic
While the MPC’s estimate is broadly in line with the baseline forecast of 6.5% in the Economic Survey, there is a reason why professional economists are right in terming the growth forecasts as slightly optimistic.
The Monetary Policy Committee (MPC)’s most important decision — it has increased the policy rate by 25 basis point — is in keeping with market expectations. The Reserve Bank of India (RBI) governor also reiterated, rightly in our view, that India’s macroeconomic fundamentals continue to be resilient and that its long-term growth story is intact. However, some professional economists caution that the MPC’s growth forecast of 6.4% for 2023-24 might be on the higher side. While the MPC’s estimate is broadly in line with the baseline forecast of 6.5% in the Economic Survey, there is a reason why professional economists are right in terming the growth forecasts as slightly optimistic.
With the global economy slowing, the export engine of growth will lose momentum. This puts the onus of driving growth on domestic consumption. This engine is expected to face headwinds from two sources. One, pent-up demand, which played a major role in driving growth until the December quarter, will wane going forward. The other source of concern on this front is the sluggish recovery in consumer confidence as seen in the January round of RBI’s Consumer Confidence Survey published on February 8. The current situation index in the survey stood at 84.8 in January. A value below 100 means negative sentiment. While the current value is a significant improvement from the values during the peak of the pandemic, it is still lower than what it was before the pandemic, when the economy had already started to lose growth momentum.
