NCAER Predicts No Change in Policy Rates as MPC Gathers for April Meeting
The National Council of Applied Economic Research (NCAER) shared an optimistic outlook for the Indian economy as the fiscal year 2023-24 draws to a close. According to the NCAER, India is on track to achieve a 7.6 percent growth rate, aligning with the projections made in the Central Statistical Organisation’s (CSO) second Advance Estimate. This positive forecast is supported by the robust trends observed in the Purchasing Managers’ Index (PMI) for both manufacturing and services sectors.
The recent Monthly Economic Review for March 2024 by NCAER highlighted several key economic indicators that suggest sustained buoyancy in the Indian economy. For instance, the PMI for manufacturing surged to 56.9 in February, indicating a significant expansion. Moreover, the growth in the output of eight crucial infrastructure sectors reached a three-month high of 6.7 percent in February, up from 4.1 percent in January 2024.
GST collections have also shown impressive performance, with February witnessing collections worth ₹1.7 lakh crore. This represents a year-on-year growth of 12.5 percent. Similarly, the year-on-year growth in the collection of GST E-way bills stood at 18.9 percent.
The banking sector experienced robust credit growth at 20.5 percent, driven by strong demand for personal loans, services, and agriculture and allied activities. “These and other indicators reinforce the optimistic growth outlook of a 7.6 percent growth rate for FY 2023-24,” remarked NCAER Director General Poonam Gupta.
Furthermore, Gupta highlighted the signs of macroeconomic stability accompanying this economic growth. The external sector, for example, has shown signs of improvement with a moderated Current Account Deficit in Q3 FY2023-24, high remittance flows amounting to $31.4 billion, an increasing services trade surplus, and resuming portfolio inflows. These factors have contributed to a substantial rise in India’s foreign exchange reserves, nearing $650 billion.
The prevailing strong growth, coupled with elevated inflation rates, suggests that the Monetary Policy Committee (MPC) is likely to maintain the current policy rates during its meeting scheduled for April 3-5. Despite the overall economic optimism, inflationary pressures remain a concern, with the Consumer Price Index (CPI) headline inflation recorded at 5.1 percent in February 2024. This inflation rate is primarily driven by high food price inflation, even as core inflation has shown signs of decline.
The intricate balance between fostering economic growth and managing inflation levels underpins the decisions faced by the MPC. With inflation remaining a persistent challenge, the anticipation grows regarding the committee’s approach to policy rates in the upcoming meeting. The interplay of economic indicators suggests a cautious optimism, as India navigates through its growth aspirations amidst global and domestic challenges.
