Steady-state of inflation shows ‘transient pick up’: RBI

The Reserve Bank of India (RBI), in its monthly bulletin for May 2023, said in April and the first half of May 2023, India’s domestic economic conditions have sustained the quickening of momentum seen in the last quarter of 2022-23.

The RBI says the long-run steady state inflation, estimated at around 4.3% for the pre-COVID period, seems to have exhibited a “transient pick up” during the post-COVID period. “The magnitude and pace of transition to a lower inflation trajectory would be conditioned by the speed of strengthening of economic activity and the nature and likely persistence of shocks.”

Notably, headline inflation eased below 5% in April 2023, for the first time since November 2021. The RBI says corporate earnings are beating consensus expectations, with banking and financial sectors posting strong revenue performance, helped by robust credit growth.

“In the first quarter of 2023-24, growth is expected to be driven by private consumption, supported by reviving rural demand, and renewed buoyancy in manufacturing on easing of input cost pressures,” says the RBI.

The global economy is transfixed in the cross-currents of slowing growth and high inflation, says the RBI. It adds that an “uneasy calm prevails in the global financial markets” as they await clearer signals from policy authorities on banking regulation and supervision and contours of deposit insurance.

The report highlights that India’s export structure is increasingly aligning itself with world demand. It suggests the country is specialising in “goods and services” having relatively higher international demand.

"This rising alignment of India’s merchandise export pattern with world exports is a testament to the role of ‘Make in India’ and ‘Atmanirbhar Bharat’ in helping India become a key supplier to the world."

On India's COP-26 commitments and challenges for the mining sector, the RBI says India has made a commitment to meet 50% of its energy requirement with renewable energy by 2030 and to achieve net-zero emissions by 2070. In this context, the paper examines India’s future path to energy security and its impact on the mining sector.

The data shows India has made significant strides in renewable installed capacity and its share in total installed capacity is at 41.3% (including large hydro) in March 2023. Investment in renewable energy has also more than doubled in 2021-22.

Nevertheless, India’s share in the global reserve of critical minerals such as cobalt, nickel, and graphite is low. “Present clean energy technologies are mineral intensive, the supply of which is concentrated in a few countries. Global coordination and technological innovations for reducing mineral requirements in producing renewable energy would play a major role in achieving a cost-effective sustainable energy transition.”

The RBI piece also talks about financial literacy, saying it plays a crucial role in ensuring financial inclusion enhances economic well-being, especially in remote villages. It says there is scope for raising awareness about digital finance, complaint escalation mechanisms, and overall financial knowledge. “Household financial decision-makers who are economically well-off, educated, younger, and have access to smartphones are more likely to possess higher levels of financial literacy."