Monetary policy remains watchful and actively disinflationary to progressively align inflation to the 4 per cent target, while supporting growth, said Reserve Bank of India Governor Shaktikanta Das.

His observation comes in the backdrop of headline inflation (change in price of all commodities, services and goods in the economy — including food and fuel) remaining vulnerable to recurring and overlapping food price shocks.

“While growth remains on track, inflation is on a path of moderation, though it is still above the target,” Das said in his keynote speech at the Symposium on Indian Economy, 2023, organised by the Institute of Indian Economic Studies, at the Tokyo Chamber of Commerce and Industry, Tokyo.

The Governor emphasised that it is a matter of satisfaction that the Indian economy has sailed smoothly through the turbulent waters during the recent years.

“Driven by its inherent dynamism and supported by a prudent policy mix, growth is getting stronger foothold while inflation is also coming under control.

“Our economic performance also owes a lot to the very calibrated, focused and targeted monetary and fiscal responses since the pandemic,” Das said, even as he underscored that in the current uncertain environment, it is best to avoid any sense of complacency.

‘Epitome of stability’

“We remain agile and continue to fortify our macroeconomic fundamentals and buffers. Today, the confidence and trust in India’s prospects are at an all-time high,” he said.

Das observed that the Indian economy has emerged as an epitome of stability and opportunity.

“We have not only kept our house in order, against large and overlapping global shocks, but also improved our macroeconomic fundamentals and buffers,” he said.

The Governor noted that the balance sheets of banks and corporates are the healthiest in a long time and with the public investment push by the government, they create favourable conditions for a sustained revival in investment.

“Consumer confidence, as evident from our surveys, is on a rising trajectory since the pandemic lows. Our external sector inspires confidence as we are reaping export opportunities in the services sector; our current account deficit remains eminently manageable; and we have bolstered our forex reserves to deal with potential eventualities,” he said.

Das emphasised that today, India has become the new engine of global growth with its young demography, improving physical and digital infrastructure and above all, an enabling policy environment.

He said the GDP grew by 7.8 per cent in the first quarter of 2023-24, and the available high frequency indicators suggest continuation of this momentum. For the full year 2023-24, real GDP growth is projected at 6.5 per cent by the Reserve Bank.

“On the supply side, while the agricultural and the industrial sectors are maintaining their underlying momentum, with renewed focus on manufacturing, a major part of the India’s growth is coming from the services sector which again largely depends on domestic demand.”

“With crucial transformations underway, India’s services sector is expected to lift its future trajectory of growth, with a major impetus coming from rapid digitalisation of the economy, which could be a game-changer for economic development,” the Governor said.

Referring to the linking of the UPI with fast payment systems of other countries that is currently undertaken, Das said linkage of fast payment systems of India and Japan may also be explored to leverage the power of fintech and make cross-border payments more efficient and less costly.

Financial innovation

The Governor observed that although financial innovation enhances ease of payment and lowers its cost, they also pose risks and challenges to the financial system.

“These risks have a bearing on overall financial stability and market integrity. We, therefore, intend to play a dual role of acting as promoter of innovation as well as being the regulator.

“While promoting innovation, our focus is on ensuring a well-regulated ecosystem that addresses systemic risks and challenges,” Das said.