THE ANNUAL REPORT ON THE WORKING

ASSESSMENT OF THE RESERVE BANK OF INDIA

AND PROSPECTS

For
Forthe
theYear
YearApril
July 1,
1, 2022
2016 to
to March
June 30,
31,2017*
2023 *

PART ONE: THE ECONOMY - REVIEW AND PROSPECTS

I ASSESSMENT AND PROSPECTS

I.1 Volatility has ebbed in global financial economic shifts impacting trade and capital flows
markets and risks to financial stability from the and technology transfers have weakened the
failure of banks in some advanced economies contribution of globalisation to growth. Private
(AEs) in March 2023 have eased. Resolute policy investment remains subdued in an atmosphere
actions have stemmed the tide of confidence runs of extreme uncertainty. Inflation pressures and
for now. Amidst the uneasy calm that prevails, a effects of fragmentation on world trade may be
reassessment of global economic prospects is lowering aggregate consumption demand, a
underway. Available projections suggest a weaker slow-moving drag on growth. In the AEs, aging
outlook for the global economy in 2023 and 2024 populations are altering labour supply conditions.
after the resilience it exhibited to multiple and often Green transition, a common global goal, has
overlapping shocks in 2022 - the war in Ukraine; opened up new investment opportunities in
the persistent elevation in food and energy renewables and electric vehicles, but the high
inflation; and the tightening of financial conditions costs of lowering carbon emissions could impinge
in response to aggressive and synchronised on developmental aspirations. Digitalisation also
monetary policy tightening across the world. The offers new growth opportunities, but the costs of
most vulnerable countries reeled under the burden tech and cyber disruptions are also rising.
of high debt levels. In the early months of 2023, I.3 For emerging market economies (EMEs),
some of the war-induced pressures on inflation the outlook appears even more uncertain as
have eased with the decline in commodity prices they look back at a year of lingering pandemic
and gradual normalisation of supply chains. The woes, surging food and energy prices and even
pace of global disinflation, however, remains less shortages, unsustainable debt overhangs and
than desirable. The resilience of the global financial repeated incidence of global spillovers that
system will inevitably be tested again as the exit brought in their train volatile capital flows and
from ultra-easy liquidity resumes and systemic generalised risk aversion. Looking ahead into the
central banks shrink their bloated balance sheets. medium-term, their prospects of convergence with
Financial regulatory policies are also set to tighten living standards in AEs have suffered a setback
in many countries, with lessons from the episodes even as the benefits of globalisation through trade
of banking system stress in March. and capital flows are receding.

I.2 Meanwhile, deep structural forces are I.4 In this turbulent global economic
at work that may shape medium- to long-term environment, India has experienced
global prospects fundamentally. Profound geo- macroeconomic and financial stability with a steady

* : Where available, this chapter has been updated beyond March 2023.

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 ANNUAL REPORT 2022-23

pick-up in the momentum of growth. This reflects a leading to tightening of financial conditions and
sound macroeconomic policy environment and the together with other factors, a toll on growth which
innate resilience of the economy which fortified it slowed from 6.2 per cent in 2021 to 3.4 per cent
against recurring global shocks. India has remained in 2022, according to the International Monetary
among the fastest growing major economies of the Fund (IMF).
world, contributing more than 12 per cent to global I.6 Waves of global spillovers to EMEs
growth on average during the last five years. As resulted in large currency depreciations, capital
inflation eases from its high reaches under the flight, investor risk aversion and raised debt
combined impact of monetary policy actions and distress in some of them. The brunt of a surge in
supply management, fiscal consolidation reduces borrowing costs imposed on EMEs and risk-off
debt and deficit levels from pandemic-induced sentiments resulted in portfolio outflows from both
highs, the current account deficit remains within bond and equity markets for much of the year.
sustainable levels; macroeconomic stability is Heightened risks of a global recession clouded
getting entrenched. Strong and healthy balance the overall macroeconomic and financial outlook.
sheets of banks, financial institutions and When data releases pointed towards resilient
corporate entities is helping to regain growth labour markets and consumer spending in both
AEs and EMEs, sentiments recovered towards
momentum eroded by the pandemic and the war.
the second half of the year. Sovereign bond yields
Medium-term prospects have been brightened
eased across most AEs and EMEs and equity
by the demographic dividend, the digital
markets regained lost ground. The weakening of
revolution, policy initiatives to transform India
the US dollar towards the close of the year buoyed
into a global manufacturing hub, a resurgence in
other currencies across AEs and EMEs.
services sector competitiveness and favourable
geo-economic positioning that is underway. I.7 By the end of the year, the global economy
regained poise, cushioned by a milder winter in
2. Assessment of the 2022-23 Experience Europe, policy support to mitigate the impact of
Global Economy soaring energy prices, resilient labour markets,
and signs of inflation peaking. Easing of pandemic
I.5 The global economy was recovering from
restrictions, mending of supply chain and logistics
the impact of successive waves of the COVID-19
disruptions, and a rebound in demand for contact-
pandemic by early 2022, aided by large policy
intensive services buoyed the global economy.
stimulus and expanding coverage of vaccination, Nonetheless, global inflation surged to 8.7 per cent
when the war in Ukraine jolted the upturn. The from 4.7 per cent in 2021, overshooting targets in
gains achieved through concerted fiscal and the majority of countries through the year. Global
monetary policy interventions during the pandemic trade (goods and services) growth slowed from
period (2020 and 2021) were undermined by the 10.4 per cent in 2021 to 5.1 per cent in 2022,
impact of the war. A generalised surge in global reflecting the post-pandemic slowdown in global
inflation triggered monetary policy actions by demand and the restrictions on cross-border
central banks in the form of successive interest movements of goods and services imposed by the
rate increases and the pulling back of liquidity, war in Ukraine.

2
 ASSESSMENT AND PROSPECTS

Domestic Economy turned sluggish as compared to the recovery in

passenger cars. The continued lag in two-wheeler
I.8 Amidst strong global headwinds, the Indian
economy is expected to have recorded a growth of sales, 40 per cent of which caters to rural India, is
7.0 per cent in real GDP in 2022-23. A sustained also indicative of subdued rural demand.
recovery in discretionary spending, particularly in I.11 Like many other economies, India also
contact intensive services, restoration of consumer experienced a surge in inflation during 2022-23,
confidence, high festival season spending after two primarily reflecting the impact of overlapping global
consecutive years of COVID-19 induced isolation supply shocks and pass-through of higher input
and the government’s thrust on capex provided costs. The sharp increase in global prices of crude
impetus to the growth momentum. In the second oil, food, fertilisers and metals, along with renewed
half of the year, however, the pace of year-on-year supply disruptions in the aftermath of the war,
growth moderated because of unfavourable base exerted broad-based price pressures during the
effects, weakening private consumption demand first half of the year. As a result, inflation reached
caused by high inflation, slowdown in export a peak of 7.8 per cent in April 2022. Following
growth and sustained input cost pressures. gradual normalisation of global supply chains,
I.9 Agriculture and allied activities were softening global commodity prices, targeted
resilient in 2022-23, with gross value added (GVA) supply management measures by the government
registering a growth of 3.3 per cent. While uneven and successive hikes in the policy repo rate by
spatial and temporal distribution of the south- the Reserve Bank, inflation moderated in the
west monsoon (SWM) led to a marginal decline second half of the year. Overall, headline inflation
in kharif foodgrains production, the production of increased to 6.7 per cent in 2022-23 from 5.5 per
kharif oilseeds, sugarcane and cotton was higher cent in 2021-22. The lagged pass-through of input
during the year. Rabi acreage expanded during the costs to retail prices of goods and services amidst
year for most crops and the prospects of rabi crop improving domestic demand conditions imparted
production, both foodgrains and oilseeds, remain considerable stickiness to already elevated core
promising, notwithstanding some damage due to inflation that ruled at around 6.0 per cent through
unseasonal rains in some parts of the country in the year.
March 2023. I.12 When inflation surged as a consequence
I.10 In the industrial sector, manufacturing of the war in Ukraine, the Monetary Policy
activity withstood global spillovers, while Committee (MPC) accorded priority to price
electricity generation exhibited robust growth, stability in the conduct of monetary policy. It
and mining recorded steady activity. Sustained changed its stance in April 2022 to remain focused
momentum was seen in construction activity, on withdrawal of accommodation to ensure that
while infrastructure and capital goods production inflation remains within the target going forward,
benefitted from the government-led investment in while supporting growth. As inflation spiked to 7.0
infrastructure. Production of consumer goods, on per cent in March 2022 and the MPC sensed that
the other hand, remained muted and recovery in the near-term inflation outlook would deteriorate
sectors such as automobiles was lopsided. Uneven sharply amidst geopolitical tensions, it raised the
recovery in consumption was evident as growth policy repo rate by 40 bps to 4.40 per cent in an
in the price sensitive entry-level car segment off-cycle meeting held in May 2022. In each of the

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 ANNUAL REPORT 2022-23

subsequent meetings during 2022-23, the MPC Sovereign bond yields hardened in line with the
raised the policy rate to keep inflation expectations monetary policy actions and changing inflation-
anchored, contain second-order effects, and align growth outlook; however, the extent of increase
inflation with the target. Cumulatively, the MPC remained contained as compared to the sharp
increased the policy repo rate by 250 bps during rise observed in bond yields in AEs. Domestic
2022-23 from 4.00 per cent to 6.50 per cent on equity markets moved lower in H1 of 2022-23
top of an increase of 40 bps in the lower bound as the economic fall-out of geopolitical tensions,
of the liquidity adjustment facility (LAF) corridor hawkish monetary policy stances by global central
in April 2022. Accordingly, the overnight weighted banks and mounting recession fears weighed on
average call money rate, the operating target of market sentiments. They recovered in early H2 and
monetary policy, rose by 320 bps during the year, closed at an all-time high on December 1, 2022,
fully pricing in the cumulative policy actions. buoyed by robust corporate earnings and inflows
I.13 The Reserve Bank adopted a nuanced and from foreign portfolio investors. Weak global
nimble footed approach to liquidity management cues amid emergence of financial stability risks
in sync with the change in the stance of monetary following the collapse of a few niche banks in the
policy, i.e., gradual reduction in the size of surplus US and concerns about financial health of a major
liquidity in the system, while still maintaining financial services provider in Europe imparted
adequate liquidity to meet the credit needs of volatility to the markets towards the close of the
the productive sectors of the economy. Overall, year. Monetary transmission in the credit market
the surplus liquidity - as reflected in net amounts - the pass-through of policy repo rate changes
absorbed under the LAF - moderated from a to lending rates - strengthened during 2022-23
daily average of `6.6 lakh crore in March 2022 to on the back of reduction in surplus liquidity in the
`0.14 lakh crore in March 2023. banking system, sustained high credit growth and
the mandated external benchmark regime for loan
I.14 Financial markets experienced bouts
pricing in select sectors.
of volatility in 2022-23, as geopolitical tensions
intensified, interest rate hikes by the US Fed I.15 The management of government
turned aggressive and the global growth outlook finances was guided by the need for prudence.
deteriorated, dampening investors’ sentiments. Accordingly, the gross fiscal deficit (GFD) of the
Equity markets in India, however, gained marginally, central government declined from 6.75 per cent
despite portfolio outflows and forex market of GDP in 2021-22 to 6.45 per cent of GDP
pressures, reflecting India’s growth resilience and in 2022-23 (RE)1, reflecting the drawdown of
rising investment in the market by resident entities. pandemic-related stimulus, even as targeted
Money market interest rates hardened during fiscal measures were undertaken to shield
2022-23, tracking the increase in the policy repo domestic consumers from high food and energy
rate and the ebbing surplus liquidity conditions. prices emanating from the war in Ukraine. Despite

1 As per the “Budget At a Glance 2023-24”, gross fiscal deficit as per cent of GDP declined from 6.7 per cent in 2021-22 to 6.4 per cent
in 2022-23 (RE), based on the first advance estimates of GDP for 2022-23. Taking into account second advance estimates of GDP for
2022-23, gross fiscal deficit as per cent of GDP for 2022-23 (RE) works out to 6.45 per cent as against the RE of 6.43 per cent given in the
Union Budget 2023-24.

4
 ASSESSMENT AND PROSPECTS

higher subsidy outgo, capex remained the lynchpin related imports. India’s merchandise trade deficit
of the government’s spending strategy. As a result, increased during the year, but the pace of increase
the revenue expenditure to capital outlay (RECO) slowed in the second half.
ratio improved from 6.0 in 2021-22 to 5.6 in
I.18 Unlike merchandise exports, strong growth
2022-23 (RE). Similarly, the revenue expenditure
of 27.9 per cent was witnessed in services exports,
to capital expenditure ratio further improved to
led by software services across key verticals such
4.7 in 2022-23 (RE) from 5.4 in 2021-22. Tax
as information technology (IT) services, business
revenues remained robust - gross tax revenues
process management (BPM), and engineering
exceeded budget estimates by `2.9 lakh crore -
research and design (ER&D), supported by a rise
underpinned by goods and services tax (GST)
in global capability centres (GCCs).
and direct tax collections.
I.19 Within capital flows, net inflows under
I.16 State governments had budgeted a gross
foreign direct investment (FDI), albeit strong, were
fiscal deficit (GFD) at 3.4 per cent of GDP for
lower during 2022-23 at US$ 28.0 billion than
2022-23. Provisional accounts indicate that the
US$ 38.6 billion a year ago. Moreover, there were
actual performance of state governments may
net portfolio outflows during the year to the tune
have been better, primarily due to higher-than-
of US$ 5.9 billion, reflecting risk-off sentiments
expected tax devolution from the Centre and a
that impacted flows to EMEs as an asset class.
healthy growth in states’ own tax revenues. During
The rising cost of borrowing in 2022-23 rendered
2022-23, therefore, states’ GFD to GDP ratio is
external commercial borrowings (ECBs) less
estimated to remain within 3.0 per cent. In the
appealing for raising funds as compared with the
fiscal arena, a landmark development was the first
previous year.
issue of Sovereign Green Bonds (SGrBs) by the
central government during the year, the proceeds I.20 Belying market fears of a possible spike
of which will be used in public sector projects that in India’s external vulnerabilities, India’s current
reduce the emission intensity of the economy. account deficit (CAD) at 2.7 per cent of GDP (during
April-December 2022) remained sustainable,
I.17 Despite prolonged geopolitical tensions
although it expanded from 1.1 per cent a year
and slowing global trade, India’s merchandise
ago. These developments, combined with lower
exports touched US$ 450.4 billion during 2022-
net capital inflows than in the previous year, led
23, which is 6.7 per cent above the previous year’s
record level. India witnessed a transition from to a depletion in the foreign exchange reserves
net importer to exporter in areas such as mobile to the tune of US$ 14.7 billion on a balance of
phones and toys and registered a 10-fold increase payments (BoP) basis during April-December
in exports of defence goods in a short span, 2022. Including valuation effects, however, India’s
leveraging on policies such as ‘Make in India’ foreign exchange reserves declined by US$ 28.9
and ‘AatmaNirbhar Bharat’. India’s merchandise billion during 2022-23.
imports, after recording high growth in the first I.21 During the year, the banking system
half of the year, decelerated during the second continued the efforts to augment capital and
half, reflecting, inter alia, the fall in international improve asset quality. The onset of a fresh
commodity prices and slowing demand for export- lending cycle since the second half of 2021-22

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 ANNUAL REPORT 2022-23

gained momentum during 2022-23, resulting activity and targeted policy initiatives. The sector
in double digit credit growth encompassing all strengthened its financial soundness during the
major sectors. The asset quality of scheduled year through robust capital buffers, improved asset
commercial banks (SCBs) continued to improve, quality and consolidation of balance sheet. A scale
with gross non-performing assets (GNPA) ratio based regulatory framework was implemented for
and net non-performing assets (NNPA) ratio NBFCs during 2022-23.
declining and the quarterly slippage ratio cooling I.24 During the year, the regulatory framework
off. The provisioning coverage ratio (PCR) also for asset reconstruction companies (ARCs) was
steadily increased. Net interest margin (NIM) reviewed to achieve the objectives of strengthening
witnessed an improvement, reflecting the higher their corporate governance and prudential norms,
degree of transmission of monetary policy to enhancing transparency of their functioning, and
lending rates than to deposit rates in the rising augmenting their role in resolution of stressed
interest rate cycle. Consequently, profit after tax assets. Furthermore, as a part of a responsive
(PAT) registered strong growth. Return on equity and forward-looking regulatory approach, several
(RoE) and return on assets (RoA) for SCBs measures were undertaken for strengthening
improved further during the year. The low slippage and developing credit risk markets, enhancing
ratio, coupled with raising of capital from the the robustness of the capital adequacy and
market and net capital accretion through profits, provisioning frameworks applicable to regulated
helped banks to bolster their capital adequacy entities, and augmenting the rating processes
levels and obviated the need for recapitalisation adopted by the credit rating agencies for bank
of public sector banks by the government. In the loan ratings. A new SupTech initiative - DAKSH -
rising interest rate environment, interest rate risks Reserve Bank’s Advanced Supervisory Monitoring
for the investment portfolio of banks remained System - was launched by the Reserve Bank
tolerable, supported by macroprudential policy on October 6, 2022. This is a web-based end-
measures such as the investment fluctuation to-end workflow application through which the
reserves (IFR), providing buffer against mark-to- Reserve Bank monitors actual compliances in a
more focused manner with the objective of further
market losses.
improving compliance culture among supervised
I.22 To commemorate 75 years of entities (SEs).
independence (Azadi Ka Amrit Mahotsav), 75
I.25 In the area of co-operative banking, the
Digital Banking Units (DBUs) were set up in 75
Reserve Bank implemented the recommendations
districts of the country to catalyse the adoption
of the expert committee on urban cooperative
of digital modes of doing banking transactions in
banks (UCBs) and adopted a simple four-
the country. These 75 DBUs were dedicated to the
tiered regulatory framework with differentiated
service of the nation by the Hon’ble Prime Minister
regulatory prescriptions aimed at strengthening
on October 16, 2022. As on March 31, 2023, there
the financial soundness of UCBs. The measures
were 84 DBUs functioning across the country.
for strengthening the sector are also being
I.23 Non-banking financial companies (NBFCs) supplemented by offering more operational
maintained robust credit growth during 2022-23, flexibility for strong UCBs to enable them to fulfil
supported by the broad-based revival in economic their desired role in credit intermediation.

6
 ASSESSMENT AND PROSPECTS

I.26 Taking forward digitisation efforts the recovery in tourism and hospitality sectors,
announced in the Union Budget 2022-23, the the card industry regained lost momentum, with
Reserve Bank introduced its Central Bank Digital monthly spending remaining above `1.6 lakh
Currency (CBDC) in phases during the year, with crore throughout the year.
the launch of pilots for Digital Rupee (e`) in the
I.29 The Reserve Bank released the
wholesale and retail segments on November 1,
Payments Vision 2025 during the year with the
2022 and December 1, 2022, respectively. The
theme E-Payments for Everyone, Everywhere,
pilots were preceded by issuance of a ‘Concept
Everytime promising to further elevate India’s
Note’ on CBDC to create awareness about
payment systems to empower every user with
CBDCs in general and the planned features of e`
safe, secure, reliable, accessible, affordable and
in particular.
efficient payment options. Various enhancements
I.27 India has emerged stronger and more were introduced in payment systems to enrich
resilient from the pandemic, partly due to the functionalities and onboard consumers on the
wave of digital transformation. Transactions digital journey. The UPI Lite was introduced to
routed through digital modes recorded a marked facilitate small value transactions in offline mode
expansion in 2022-23 over and above the strong using UPI through an on-device wallet. Linking of
growth witnessed a year ago. In 2022-23, total RuPay credit cards to UPI was permitted to deepen
digital payments recorded growth of 57.8 per cent usage by broadening the financial products linked
and 19.2 per cent in volume and value terms, for payment processing. Introduction of single block
respectively, on top of growth of 63.8 per cent multiple debits in UPI enhanced the capabilities for
and 23.1 per cent, respectively, in the previous merchant payments. The UPI was also extended to
year. India outpaced other nations to emerge as non-resident Indians (NRIs) and foreign nationals
the largest player in real-time transactions at the for undertaking merchant payments in India. The
global level, with a 46 per cent share in 20222. The linking of UPI with PayNow of Singapore helped
strong penetration and growth in Unified Payments facilitate low-cost fund transfers and remittances
Interface (UPI) were buoyed by rapid merchant between the two countries. The scope of Bharat
onboarding, growing digital awareness and policy Bill Payment System (BBPS) was expanded to
thrust on continuous enhancements in the scope include all categories of payments and collections,
and reach of payment systems. both recurring and non-recurring in nature. BBPS
I.28 Sharp upticks witnessed in the Aadhaar was also extended to provide a standardised bill
Payments Bridge System (APBS) and the National payment experience to NRIs by facilitating cross-
Automated Clearing House (NACH) in 2022-23 border bill payments.
attested to the diffusion of digital payments in I.30 Initiatives undertaken to broaden and
the rural and semi-urban areas of the country, in deepen financial inclusion in the country by the
part owing to the positive nudge provided through government as well as the Reserve Bank have
government cash transfers going digital. With been helping in promoting inclusive economic

2 ACI Worldwide, Real Time Payments, Global Data, 2023.

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 ANNUAL REPORT 2022-23

development. The Reserve Bank’s Financial growth slowdown dominate market sentiments.
Inclusion Index (FI-Index), a quantifiable metric to With policy tightening by global central banks
evaluate the efficacy of efforts towards financial having moderated, the US dollar is likely to
inclusion, based on 97 indicators (reflecting ease depreciate, easing pressures on currencies of
of access, availability and usage of services, and other AEs and EMEs even as the outlook for
quality of services), improved from 53.9 in March capital flows to EMEs remains uncertain.
2021 to 56.4 in March 2022 (latest available), with I.33 Overall, the prospects for the global
growth witnessed across all sub-indices. economy continue to be shadowed by high
3. Prospects for 2023-24 inflation, the adverse effects of geo-economic
fragmentation operating through restrictions on
Global Economy
movements of trade, labour, capital and diffusion
I.31 Global growth is expected to slow down of technology, and potential amplification of
in 2023 and may remain subdued in the medium financial sector vulnerabilities. Medium- to long-
run. As per the IMF’s World Economic Outlook term challenges such as climate change, cyber
(WEO) released in April 2023, global growth for security, crypto currencies, FinTech and tech
2023 at 2.8 per cent is likely to be followed by disruptions can also potentially vitiate the outlook.
the medium-term growth plateauing at 3.0 per
I.34 The urgent need for multilateral
cent. Globally, disinflation efforts are expected to
cooperation against this backdrop makes the
take down headline inflation from 7.3 per cent to
G20 an effective forum for addressing the global
4.7 per cent in 2023 among AEs, and from 9.8
challenges under India’s Presidency, with the
per cent to 8.6 per cent among emerging market
theme ‘Vasudhaiva Kutumbakam’ – ‘One Earth ·
and developing economies (EMDEs). Progress
One Family · One Future’. The Ministry of Finance
is, however, likely to be gradual amidst sticky
(MoF), Government of India and the Reserve
and elevated upside pressures. Central banks
Bank together are steering the G20 discussions
continue to face a challenging trade-off between
to bring in the perspective of EMDEs in the global
restoring price stability and addressing growth
south under the ambit of the Finance track. The
slowdown in an environment of heightened
deliberations under the G20 Finance Ministers
uncertainty. Potential financial risks from high
and Central Bank Governors (FMCBG), Finance
debt levels and the recent banking sector
and Central Bank Deputies (FCBD) and various
developments in the US and Europe highlight
Working Group meetings3 on the presidency’s
the scope for unanticipated build-up of stress
priorities and deliverables will facilitate a globally
with strong adverse spillovers across the global
coordinated policy response to these challenges.
financial system.
Domestic Economy
I.32 Financial markets are signalling the likely
end of the global monetary policy tightening cycle, I.35 Domestic economic activity does face
with equity prices having clawed back losses and challenges from an uninspiring global outlook going
bond yields having softened. Commodity prices forward, but resilient domestic macroeconomic
are also trading with a softening bias as fears of and financial conditions, expected dividends

3 Meetings are being held since taking over of G20 Presidency on December 1, 2022.

8
 ASSESSMENT AND PROSPECTS

from past reforms and new growth opportunities outlook survey, manufacturing firms are exuding
from global geo-economic shifts place India at an positive sentiments on production, order books,
advantageous position. Taking into account softer employment conditions and capacity utilisation for
global commodity and food prices, good rabi crop Q2 and Q3:2023-24. In the recent 36th round of
prospects, sustained buoyancy in contact-intensive the quarterly services and infrastructure outlook
services, the government’s continued thrust on survey, private companies in both sectors expect
capex, higher capacity utilisation in manufacturing, the job landscape to improve in Q1:2023-24
double digit credit growth, receding drag on despite lower optimism on profit margins and
purchasing power from high inflation and rising selling prices. These firms also show higher
optimism among businesses and consumers, real confidence in the overall business scenario in Q2
GDP growth for 2023-24 is projected at 6.5 per and Q3:2023-24 in spite of an expected rise in
cent with risks evenly balanced. input costs and selling prices.
I.36 Risks to inflation have moderated with I.38 The realignment of global supply
downward corrections in global commodity and chains, transition to green energy and ongoing
food prices and easing of the pass-through technological advancements provide a congenial
from high input cost pressures of last year. The environment for a pick-up in investment activity
cumulative increase in policy repo rate by 250 bps and raising productivity. Robust balance sheets
last year would steer the disinflationary process, of corporates and banks, coupled with high
along with supply side measures to address capacity utilisation, would aid in strengthening
transient demand-supply mismatch due to food the momentum in private investment. Burgeoning
and energy shocks. With a stable exchange rate credit growth, especially housing and personal
and a normal monsoon – unless an El Nino event loans, reflects steady domestic household demand.
strikes – the inflation trajectory is expected to This is also mirrored in several high frequency
move down over 2023-24, with headline inflation indicators of rural and urban demand such as rising
edging down to 5.2 per cent from the average level sales of tractor and fertiliser, improvement in the
of 6.7 per cent recorded last year. Monetary policy labour participation rate in rural areas, domestic
remains focused on withdrawal of accommodation air passenger traffic, passenger vehicle sales, and
to ensure that inflation progressively aligns with robust goods and services tax collections. Robust
the target, while supporting growth. agriculture production buoyed by expectation of a
I.37 The March 2023 round of the Reserve bountiful rabi harvest and resilience in allied sector
Bank’s consumer confidence survey reveals that activity are also brightening the outlook for rural
the current situation is perceived by consumers demand. Traction in construction activity is likely
to have improved on account of optimism in the to be sustained as reflected in steady expansion
general economic situation and in household in its proximate indicators: steel consumption and
income. Future expectations also remain positive. cement production. Port cargo traffic and railway
Households’ spending on non-essential items is freight traffic movements also point to industrial
expected to rise over the year ahead. According activity picking up amidst gradual easing of input
to the 101st round of the quarterly industrial cost pressures.

9
 ANNUAL REPORT 2022-23

I.39 The prospects of the kharif crop would to provide a fillip to the growth momentum such
depend on the progress of the rainfall during as diversification and promotion of allied sectors;
the SWM. As per the India Meteorological boosting logistics infrastructure for last-mile
Department’s (IMD) forecast, the SWM season connectivity; export promotion; cooperative-based
rainfall during June-September 2023 is likely to be development; strengthening agricultural extension
normal at 96 per cent (+/- 4 per cent) of the long services through digital public infrastructure; and
period average (LPA). The actual performance of spurring private investment through Agri-Startups.
the SWM rains, however, would depend on the Private investment growth is also expected to
interplay of possible rainfall deficiency due to an strengthen with the production-linked incentive
El Nino event and the counterbalancing effects of (PLI) scheme providing additional fillip. Various
events such as the positive Indian Ocean Dipole. other steps to enhance logistics efficiencies and
The announcement of minimum support prices cost competitiveness under the Prime Minister’s
(MSPs) well in advance of the start of the sowing Gati Shakti and the National Logistics Policy (NLP)
season would incentivise farmers for expanding are expected to bring down logistics costs.
sowing acreage. The government has set the I.41 The outlook for services sector remains
target for total foodgrains production during positive in 2023-24. Real estate and construction
2023-24 at 332 million tonne, 0.4 per cent above have witnessed a revival post-pandemic and are
the third advance estimate of previous year’s expected to perform well in this year also as both
production. With the United Nations General demand for and supply of housing remain buoyant.
Assembly (UNGA) declaring 2023 as the
I.42 In the external sector, the current account
international year of millets, India can enhance the
deficit (CAD) is expected to remain moderate,
export potential of millets, as currently only one
drawing strength from robust services exports and
per cent of the total millet production is exported.
the salubrious impact of moderation in commodity
I.40 The crowding-in effects of sustained prices of imports. With global uncertainties
increase in government capex over recent years persisting, foreign portfolio investment (FPI) flows
is expected to spur higher private investment in may remain volatile. The favourable domestic
2023-24. In the Union Budget 2023-24, budgeted growth outlook, lower inflation, and business-
capital expenditure has increased by 37.4 per cent, friendly policy reforms could, however, help
with the railways receiving the highest ever capital sustain buoyant FDI inflows. Furthermore, inward
outlay of `2.4 lakh crore. The allocation of interest remittances are likely to remain robust owing to
free loans to states for capital expenditure has also better growth prospects in the Gulf countries. As a
been enhanced to `1.3 lakh crore from `1.0 lakh result, external vulnerability risks may ease further
crore in the previous year. The entire loan amount during 2023-24. The Foreign Trade Policy (FTP),
will have to be spent in 2023-24 and a share of 2023 announced on March 31, 2023 endeavours
these loans will be contingent on states increasing to promote an export-friendly environment to
their actual capital expenditure. Besides higher nurture comparative advantage; harness the
allocation for capex, the Union Budget 2023-24 opportunities in bilateral trade agreements to help
has announced several measures, which are likely India participate in global value chains (GVCs)

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 ASSESSMENT AND PROSPECTS

and expand access to markets; and explore more inclusion, innovation, institutionalisation and
trade in the Indian rupee (INR). With global trade internationalisation. These measures are
volume growth projected by the World Trade expected to propel India’s payment systems
Organisation (WTO) to decelerate from 2.7 per further. Going forward, along with the continued
cent in 2022 to 1.7 per cent in 2023, progress on focus on innovation and customer protection,
all thrust areas in the FTP would be essential. the key priorities would be inclusion and
I.43 The recent financial sector turmoil in the internationalisation. The scope of UPI shall
US and Europe has necessitated the need to be enhanced to facilitate payments from pre-
reassess risks to financial stability and resilience sanctioned credit lines at banks. The cheque
of financial institutions in the context of monetary truncation system (CTS) is planned to be migrated
policy tightening. While Indian banks and non- from the existing three regional grids to ‘One
banking financial intermediaries remain sound Nation One Grid’. The Reserve Bank envisages
and resilient, they need to stress test for these enhancing the outreach of payment systems to
new shocks. Capital buffer and liquidity position, cross-border payments and remittances. Linkages
therefore, must be constantly reviewed and
with fast payment systems in other jurisdictions,
strengthened. Accordingly, policy measures,
on the lines of the UPI-PayNow linkage with
such as guidelines on introduction of expected
Singapore, are in the pipeline.
loss-based approach for provisioning are likely
to be announced during 2023-24. In addition, I.46 One of the milestones of the National
finalisation of guidelines on securitisation of Strategy for Financial Inclusion (NSFI) is to expand
stressed assets, and a comprehensive review of the reach of centres for financial literacy (CFLs) at
the prudential framework (including the guidelines every block in the country by March 2024. Looking
on resolution of stress in respect of projects under ahead, the outreach of the CFLs is now being
implementation) are also likely to be undertaken scaled up across the country in a phased manner,
during the year with the objective of further and the entire country is expected to be covered
strengthening the resolution ecosystem. by 2024.
I.44 During 2023-24, the Reserve Bank aims
I.47 For ensuring public confidence in the
at expanding the ongoing pilots in CBDC-Retail
financial system and also to protect the interests
and CBDC-Wholesale by incorporating various
of customers of regulated entities (REs), the
use cases and features. The pilot in CBDC-Retail
Reserve Bank is in the process of embedding
is proposed to be expanded to more locations and
artificial intelligence (AI)/machine learning (ML)
to include more participating banks.
and other cutting edge technological tools in
I.45 As the Reserve Bank embarks upon its 24x7 online complaint management system
the journey of realising the Payments Vision (CMS) to facilitate lodging of complaints with ease,
2025, the steps taken so far towards enhanced provide complainants with necessary information
outreach, customer centricity, cyber security and on grievance redressal and expedite complaint
digital deepening shall be further consolidated processing by aiding decision making for the
and built upon through the five pillars of integrity, ombudsman.

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 ANNUAL REPORT 2022-23

4. Conclusion momentum is likely to be sustained in 2023-24 in

I.48 To sum up, several shocks tested the an atmosphere of easing inflationary pressures.
resilience of the Indian economy in 2022-23. On Slowing global growth, protracted geopolitical
the back of sound macroeconomic policies, softer tensions and a possible upsurge in financial market
commodity prices, a robust financial sector, a volatility following new stress events in the global
healthy corporate sector, continued fiscal policy financial system, however, could pose downside
thrust on quality of government expenditure, and risks to growth. It is important, therefore, to sustain
new growth opportunities stemming from global structural reforms to improve India’s medium-term
realignment of supply chains, India’s growth growth potential.

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