According to the State of the Economy report released by the Reserve Bank of India (RBI), India’s recovery from the pandemic has been more robust than initially expected, with a consistent build-up of momentum from Q2FY23. The RBI’s nowcast model projects real GDP growth for the Q4 FY23 at 5.3%.
- On the other hand, global growth is set to slow down or even enter a recession in 2023.
- It should be noted that the views expressed in this article are those of the authors and do not represent the views of the RBI.
- Michael Debabrata Patra, the deputy governor of RBI, was also among one of the authors of this report.
Key Points:
i.In terms of supply, the agriculture sector is experiencing a seasonal upswing, the industrial sector is gradually recovering from a contraction, and the services sector has sustained its momentum.
ii.Consumer price inflation remains high and core inflation continues to defy the distinct softening of input costs.
iii.The report ared-flagged a slowdown in private consumption.
iv.Retail inflation in February 2023 moderated to 6.44% year-on-year (y-o-y), from 6.52% in January 2023.
- CPI (Consumer Price Index) Core inflation softened to 6.1% in February 2023 from 6.2% in the January 2023.
- Food inflation (y-o-y) was marginally higher at 6.3 % in February 2023 over 6.2 % in January 2023.
v. CPI inflation has stayed above the RBI’s upper tolerance level of 6% for nine of the 11 months in Fy23, despite a 250-bp hike in the repo rate since May 2022.
vi.Over the financial year ahead (2023- 24), inflation is expected to range tightly between 5% and 5.6% if India survives an El Nino event adversely affecting the south west monsoon, given global uncertainties
vii.During the pandemic, the gap between investment and savings reversed from a gap of 0.8% of GDP in 2019-20 to a surplus of 1.0% in 2020-21. It has again flipped to a gap of 1.2% in 2021-22.
Note: The year 2023 marks the birth tercentenary of Adam Smith, widely regarded as the father of modern economics.
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Outward remittances under RBI’s LRS in April-January surpass FY22
According to data released by the RBI, in its monthly bulletin for March, outward remittances under the RBI’s liberalized remittance scheme (LRS) stood at $22.08 billion during the April 2022–January 2023 period, surpassing the all-time high of $19.61 billion in FY22.
- In January 2023, the amount remitted overseas totalled $2.72 billion. This is the highest amount remitted under the scheme in a month during FY23. On a year-on-year (YoY) basis, these were up 35.17%.
Key Points:
i.In FY21, India’s remittances stood at $12.68 billion, down 32.38% from FY20 ($18.76 billion) amid COVID-19 Pandemic.
ii.According to January 2023 data, international travel constituted over 55% of the entire outward remittances by Indians under LRS.
- Outward remittances for international travel touched $1.49 billion, up 1.5 times from the same period in 2022.
- After international travel, Indians spent most on overseas education, followed by maintenance of close relatives, and gifts.
iii.In January 2023, outward remittances by Indians under the scheme for overseas education were $395.87 million.
- It was followed by $342.47 million for maintenance of close relatives, and $223.22 million as gifts.
About LRS Scheme:
It was introduced in 2004, all resident individuals, including minors, are allowed to freely remit up to $250,000 per financial year. This is for any permissible current or capital account transaction or a combination of both.
RBI sells net $384 million in spot foreign exchange market in January
In its bulletin of March 2023, RBI’s data showed that it purchased $12.90 billion in January 2023, while selling $13.29 billion.
- RBI sold a net $384 million in the spot foreign exchange market in January 2023.
- This is lower compared to the net sales of $771 million in January 2022.
Key Points:
i.The Indian rupee appreciated by nearly 1% against the dollar in January and moved in a wide range of 80.88 to 82.94.
ii.The RBI’s net outstanding forward purchase stood at $21.73 billion as end of January 2023, compared with a net purchase of $10.97 billion at the end of February 2023.
About spot foreign exchange:
A foreign exchange spot transaction, also known as FX spot, is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date.
Recent Related News:
i.RBI issued final guidelines on “Interest Rate Risk in Banking Book” (IRRBB),
which mandate banks to measure, monitor, and disclose their exposure to IRRBB, which may have an impact on lenders’ capital base and future earnings.
ii.RBI introduced Foreign Contribution (Regulation) Act (FCRA) related transaction code in National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) Systems.
About Reserve Bank of India (RBI):
Governor– Shaktikanta Das
Deputy Governors– Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar
Headquarters– Mumbai, Maharashtra
Establishment– 1st April 1935
