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Inflation to reach Target in FY26: RBI’s State of the Economy Report

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Inflation seen closer to target in FY26 RBI's state of the economy reportOn May 21, 2024, the Reserve Bank of India (RBI) recently published its ‘State of the Economy‘ report, authored by Deputy Governor Michael Debabrata Patra and others.

  • As per it, durable alignment of headline retail inflation with the 4% target may begin in the second half of FY25, potentially reaching target levels by FY26.

Note: The State of the Economy is a part of the ‘RBI Bulletin – May 2024‘ which includes three speeches, four articles, and current statistics.

Key Points:

i.Headline inflation, measured by Year-on-Year (Y-o-Y) changes in the all-India Consumer Price Index (CPI), moderated to 4.8% in April 2024 from 4.9% in March.

ii.Food inflation increased to 7.9% in April 2024 from 7.7% in March 2024, with prices of various food items likely to maintain headline inflation around 5%.

iii.The RBI projects CPI inflation of 4.5% in FY25, with quarterly projections as follows: Q1: 4.9%, Q2: 3.8%, Q3: 4.6%, and Q4: 4.5%.

iv.Rural inflation in April 2024 stood at 5.43%, surpassing urban inflation.

Net FDI declines by 62% to USD 10.5 billion in FY24

As per the report, Net Foreign Direct Investment (FDI) into India dropped by 62.17% to USD 10.58 billion in FY24, the lowest since 2007, from USD 27.98 billion In FY23. This decline was primarily due to increased capital repatriation and Indian investments abroad.

Key Points:

i.Out of the USD 70.9 billion gross FDI flows in FY24, USD 44.4 billion was repatriated through dividends, share sale, or disinvestment, while USD 15.96 billion was invested overseas by Indians.

  • In FY23, gross FDI flows were USD 71.3 billion.

ii.Over 60% of FDI equity flows targeted manufacturing, electricity, computer services, financial services, retail, and wholesale trade.

iii.More than 80% of FDI flows came from Singapore, Mauritius, the United States of America(USA), the Netherlands, Japan, and the United Arab Emirates (UAE).

iv.Global FDI flows have been affected by higher borrowing costs, geopolitical fragmentation, and rising protectionism in recent years.

  • Despite these challenges, India is expected to be among the top 10 economies with high FDI momentum in 2024.

Outward remittances under LRS hit new high of USD 31.73 bn

Outward remittances under India’s Liberalized Remittance Scheme (LRS) hit a record high of USD 31.73 billion in FY24, marking a 16.91% increase Y-o-Y from FY23’s USD 27.14 billion.

  • The growth was driven by robust international travel spending, reaching USD 17 billion in FY24, a 24.84% rise from the previous year.
  • Other significant uses of remittances included maintenance of close relatives (USD 4.61 billion) and funding overseas education (USD 3.58 billion).
  • In March 2024, overall outward remittances amounted to USD 2.30 billion, down by 22.13% compared to March 2023.

NRI deposit flows up 63.5% to USD 14.7 bn in FY24, the highest in 8 years

Non Resident Indian (NRI) deposit flows surged by 63.5% to USD 14.7 billion in FY24, the highest in 8 years. The earlier high was USD 15.97 billion in FY16. The majority of the increase went into Foreign Currency Non-Resident (FCNR) accounts, totaling USD 6.37 billion in FY24 compared to USD 2.44 billion in FY23.

Key Points:

i.Outstanding NRI deposits reached USD 151.87 billion by March 2024, up from USD 138.87 billion in March 2023.

ii.FCNR deposits rose to USD 25.73 billion in March 2024, compared to USD 19.36 billion in March 2023.

iii. Non-Resident External (NRE) deposits stood at USD 98.62 billion in March 2024, and Non-Resident Ordinary (NRO) deposits reached USD 27.52 billion by March 2024.

Recent Related News:

i.On 24th July 2023, Reserve Bank of India(RBI) imposed business limitations on Bengaluru’s one of the oldest banks, National Co-operative Bank Limited because of its poor declining financial condition.

ii.RBI cancelled the licence of United India Co-operative Bank Limited,

Nagina( Bijnor, Uttar Pradesh) as the bank does not have adequate capital and earning prospects to pay its present depositors in full.

About Reserve Bank of India (RBI):
Governor– Shaktikanta Das
Deputy Governors– Swaminathan Jankiraman, Michael Debabrata Patra, M Rajeshwar Rao and T Rabi Sankar
Headquarters– Mumbai, Maharashtra
Establishment– April 1, 1935