Conditions are shaping up for an extension of the trend upshift that took India’s average real GDP growth above 8 per cent during 2021-24 even as there is greater confidence now that the descent of retail inflation to the 4 per cent target is imminent, according to an article in RBI’s latest monthly bulletin.

The conditions are apposite, with the credit quality of Indian corporates having strengthened on the back of deleveraged balance sheets, sustained domestic demand and public capital expenditure: rating upgrades have continued to surpass downgrades, said RBI officials, including Deputy Governor MD Patra, in the article “State of the Economy”.

RBI Governor Shaktikanta Das, in his statement at the last monetary policy committee meeting held between April 3 to 5, 2024, observed that the Indian economy is growing at a robust pace with an average annual growth of 8 per cent during the last three years.

“India continues to be the fastest growing major economy in the world, supported by an upturn in investment cycle and revival in manufacturing. Services sector continues to grow at a strong pace,” he said.

RBI officials noted that an important development that favours India’s growth ambitions is the evolution of inflation dynamics in recent prints. Starting in January 2024, the softening of headline inflation is providing a tailwind to growth impulses.

Analysis within India’s KLEMS (capital, labour, energy, materials and services) growth accounting framework shows that the contribution of fixed capital stock to the growth of gross value added (GVA) in India has started improving from the low to which it had declined during the pandemic.

“By 2021-22, its contribution to the growth of GVA had recovered to 32 per cent, although there is still catch-up to attain vis-a-vis pre-pandemic levels. If this is augmented by the quality of the capital stock embodied in its composition, the contribution goes up close to 34 per cent,” the authors said.

The RBI officials underscored that in order to achieve its developmental aspirations over the next three decades, the Indian economy must grow at a rate of 8-10 per annum over the next decade to reap the demographic dividend that started accruing from 2018 and, as calculations show, will last till 2055.

So far, capital deepening is powering the step-up in the growth trajectory, led by sustained public investment, and supported by productivity improvements, they added.

The officials opined that for India to harness its favourable demographics and achieve the escape velocity required to breach the low middle income barrier, the developmental strategy over the next few decades must centre around extracting the maximum possible contribution of its young and rising labour force to the growth of GVA.

With the working age population set to expand at the rate of about 9.7 million per annum during 2021-31 and 4.2 million per annum during 2031-41, the cutting edge of the growth strategy will be provided by a focus on labour quality, they said.


Consumer price index (CPI) inflation has gravitated to 4.9 per cent in March after averaging 5.1 per cent in the preceding two months following the recent peak at 5.7 per cent in December 2023.

“This trajectory was along anticipated lines, with Q4:2023-24 inflation outcome of 5.0 per cent in alignment with projections. The softening of core (CPI excluding food and fuel) inflation to historic lows in March, driven by moderation across goods and services components, gives credence to the conduct of disinflationary monetary policy.

“With 4 per cent inflation finally being sighted, there is greater confidence now that the descent of inflation to the target is imminent,” the officials said.

They cautioned that food inflation, despite some signs of moderation, remains elevated and a potential source of risk to the disinflation trajectory.

The officials emphasised that careful monitoring during the summer is warranted as overlapping food price shocks play out, before an above normal Southwest monsoon this year, as projected by the India Meteorological Department (IMD), enabling an easing of food price pressures.

In the near term, however, extreme weather events may pose a risk to inflation along with prolonged geo-political tensions that could keep crude oil prices volatile.