Can India Sustain High Growth Without Triggering Inflation?

Despite expectations of an economic downturn globally, India’s economy is progressing swiftly. However, could this development become a reason for inflation in India?

The Reserve Bank of India (RBI) recently stated that the country’s economy could grow by up to 7% in FY 2023-24, exceeding the initial estimate of 6.5%. However, the inflation rate is expected to be 5.4%, surpassing the 4% target. Fortunately, there is optimism that inflation won’t increase further.

According to the latest assessment by the International Monetary Fund (IMF), the growth of the Indian economy is expected to be around 6.3% in the current financial year and the next. While the RBI anticipates a 7% growth in the Indian economy. It remains to be seen whether this growth becomes a cause for inflation.

What’s Happening?

Since GDP growth and inflation are two sides of the same coin, typically, when the economy grows, inflation also rises. However, the RBI is cautious, aiming for a steady decrease in inflation, keeping in line with its 4% inflation rate target.

As mentioned in Mint, according to Neelkanth Mishra, Chief Economist at Axis Bank, we should take cues from India’s ongoing growth or sustained economic development. If India trends at 6% growth while the economy grows up to 7%, it could lead to inflation. But if there is harmony between trends and actual economic development, inflation may not be a concern.

What Do Inflation Figures Indicate?

As per data released by the National Statistical Office on Tuesday, India’s Consumer Price Index (CPI) for November stood at 5.55%, up from 4.87% in October.

Rural inflation remained at 5.85% in November 2023, an increase from October’s 5.12%. Food inflation in November was 8.70%, compared to 6.61% in October.

November’s inflation figures are still within the RBI’s tolerance band of 2-6%.

Inflation data for 2023 calculated based on the CPI:

What’s Next?

During Friday’s Reserve Bank of India meeting, Governor Shaktikanta Das stated that India’s GDP growth could be 7% in FY24, with Q3 at 6.5% and Q4 at 6%. Additionally, the GDP growth rate for the first three-quarters of FY25 is expected to be around 6.7%, 6.5%, and 6.4%, respectively.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

*The article is for information purposes only. This is not an investment advice.

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