India will be a $3.7 trillion economy in 2023, maintaining its lead over the UK as the fifth largest economy of the world, a Reserve Bank article said on Thursday stressing that the macro economic stability is getting entrenched.
Recent data arrivals indicate that the first milestone of monetary policy is being passed – bringing inflation into the tolerance band, said the article titled 'State of the Economy' published in the January bulletin of the RBI.
The objective during 2023 is to tether inflation therein so that it aligns with the target by 2024 – the second milestone, the said the article auhtored by a team lead by RBI Deputy Governor Michael Debabrata Patra.
"At current prices and exchange rates, therefore, India will be a $3.7 trillion economy in 2023, maintaining its lead over the UK as the fifth largest economy of the world," it said.
According to the IMF’s calculations, India will move into fourth place in 2025 and into the third place in 2027 as a $5.4 trillion economy.
The article said a slowdown in growth with possibilities of recession in large swathes of the global economy has become the baseline assessment even as inflation may average well above targets.
Emerging markets are appearing more resilient than in the year gone by, but their biggest risks in 2023 stem from US monetary policy and the US dollar.
"In India, the softening of commodity prices and other costs amidst strong revenues appears to have boosted corporate performance," it said.
The central bank said views expressed in the article are those of the authors and do not represent the views of the Reserve Bank of India.
Turning to early developments in 2023, the authors said macroeconomic stability is getting further entrenched. Recent data arrivals indicate that the first milestone of monetary policy is being passed – bringing inflation into the tolerance band.
The article further said fiscal consolidation is underway at central and sub-national levels, graduated to nurture the pace of the economic recovery.
Lead indicators suggest that the current account deficit is on course to narrow through the rest of 2022 and 2023, it added.
"...2023 may well be the opening ajar of a window in which India’s time on the world stage is arriving," it said.
In April 2023, India’s population will be the largest in the world, projected at 1.4 billion. A sixth of the increase of the world’s population of working age (15-64) people between 2023 and 2050 will be Indians.
Coupled with a median age of 28, this is India’s chance to seize the demographic dividend and herald its emergence as an economic powerhouse of the future," it added.
With the merchandise trade deficit reaching an all-time high of $83.5 billion in a quarter, and an increase in net outgo from the income account, the current account deficit (CAD) increased to 4.4 per cent of GDP in the second quarter of 2022-23. The CAD for April-June quarter of fiscal was revised down from 2.8 per cent to 2.2 per cent on account of downward adjustment in customs data.
Similar adjustments may impinge on the CAD for the second quarter of 2022-23 as customs data or imports are revised, the article said.