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Global economic growth is slowing down, specifically in the manufacturing and investment sectors. However, the overall inflation rate, as measured by headline inflation, is stable. It’s worth noting that core inflation, which excludes volatile factors, remains persistently elevated, according to a bulletin released by the Reserve Bank of India (RBI).
The report added that “hawkish policy stances” have led to increased future interest rate expectations, resulting in flat equity prices and rising bond yields.
In India, the deficit of rainfall is diminishing due to cyclone-induced fluctuations. Despite a slight moderation in June, both manufacturing and services sectors continue to expand.
Furthermore, the overall balance of payments improved in the first quarter of the financial year 2023-24, with financial flows surpassing the current account.
Along with an update on the current state of the economy, the RBI also released a report titled, ‘When Circumspection is the Better Part of Communication.’ This article examines the significance of forward guidance as a communication tool in monetary policy during unconventional times. While forward guidance influences longer-term interest rate expectations, the article reveals its limitations in a rate-tightening cycle.
Another article, ‘A Prototype Dynamic Stochastic General Equilibrium Model for India’ presents a prototype Dynamic Stochastic General Equilibrium (DSGE) model for India, assessing the structural changes in the economy and shifts in key monetary policy parameters before and after significant events.
Notably, the model reveals that aggregate demand has become more responsive to changes in the real interest rate, while the Phillips curve has flattened, indicating potential challenges in future disinflation efforts.
The ‘Quality of Public Expenditure and Economic Growth: An Empirical Assessment at Sub-National Level’ report highlights the importance of improving the quality of public spending to support economic growth. The analysis shows a positive relationship between improved expenditure quality and higher gross state-domestic product (GSDP) growth. This emphasises the crucial role of state-level spending in fostering overall economic development.
Finally, ‘India @ 100’ outlines a roadmap for India to achieve high-income country status by 2047-48. The article emphasises the need for India’s real GDP to grow at 7.6 per cent annually over the next 25 years.
To achieve this, India must rebalance its economic structure, strengthen the industrial sector, and promote growth in the services sector. A multi-pronged approach focusing on structural reforms, infrastructure development, digitalization, and upskilling the workforce is deemed essential to tap into growth opportunities.
The RBI has also released an overview of the Reserve Bank’s history, encompassing its policies, operations, and institutional evolution. It examines the formative phase, policy initiatives, financial sector reforms, crisis management, internal process changes, and wide-ranging reforms that have shaped the modern monetary and financial system.
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