Indian economy to face challenges from artificial intelligence, climate shocks: RBI Annual Report

MUMBAI: India’s economy is poised for robust growth over the next decade, with some challenges arising from rapid adoption of artificial intelligence and machine learning technologies and persistent climate shocks, the Reserve Bank of India said. (RBI) said in its annual report for FY24.

Growth over the next decade will come on the back of macroeconomic and financial stability, the central bank said, as India harnesses its demographic dividend and makes the most of its competitive advantage.

„…India’s economy is heading towards traction from an adverse global macroeconomic and financial environment,” it said in a statement released on Thursday.

However, real gross domestic product (GDP) growth remains strong on the back of solid investment demand supported by healthy balance sheets of banks and corporates. It added that growth was supported by the government’s focus on capital expenditure and prudent monetary, regulatory and fiscal policies.

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Even against the backdrop of global economic activity and several headwinds, the Indian economy expanded at a robust pace in FY24, with real GDP growth picking up to 7.6% (second advance estimate) from 7% in the previous year. – Third consecutive year of growth of 7% or more.

„The domestic economy showed robust growth in 2023-24, supported by robust investment activity, amid subdued external demand,” it said.

The report also indicated that inflationary pressures during FY24 remained moderate, though flat. This reflects the combined impact of measured monetary tightening, easing input cost pressures and supply management measures, RBI said.

Headline inflation was cut from 6.7% to 5.4% in 2023-24, while core inflation – the consumer price index or CPI excluding food and fuel – fell to 4.3% from 6.1% over the same period.

„As headline inflation moves towards the target, it will boost consumption demand, especially in rural areas,” it said.

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According to the RBI, external sector strength and buffers through foreign exchange reserves protect local economic activity from global spillovers.

„Geopolitical tensions, geoeconomic fragmentation, global financial market volatility, international commodity price movements and erratic weather developments pose downside risks to the growth outlook and upside risks to the inflation outlook,” it said.