Economic Review: ANNUAL REPORT 2023-24

ANNUAL REPORT 2023-24
II ECONOMIC REVIEW
The Indian economy exhibited resilience during 2023-24, in the face of headwinds from protracted geopolitical
tensions and volatile global financial markets. The combination of a sustained anti-inflationary monetary
policy stance and proactive supply management measures resulted in headline inflation remaining largely
within the tolerance band. Monetary and credit conditions evolved in line with the monetary policy stance.
Within the commitment to fiscal consolidation, emphasis was laid on capital spending. External sector
sustainability indicators improved during the year, insulating the economy from spillovers from adverse global
macro-financial shocks.
II.1.1 The global economy turned out to be banks. Sovereign bond yields hardened in the
resilient in 2023 in spite of tightening financial first half of 2023-24 and exhibited sizeable two-
conditions engendered by restrictive monetary way movements in the second half. The US dollar
policy stances, geopolitical tensions and remained firm through the year, putting downward
geoeconomic fragmentation. Global GDP rose by pressures on emerging market economy (EME)
3.2 per cent in 2023 (3.5 per cent a year ago1) currencies.
supported by buoyancy in the US and major
II.1.2 Amidst global uncertainty, the Indian
emerging market and developing economies
economy exhibited resilience during 2023-24,
(EMDEs). Global inflation eased to 6.8 per cent
with real GDP growth3 improving to 7.6 per cent
in 2023 from 8.7 per cent a year ago on the
from 7.0 per cent in 2022-23, supported by robust
back of monetary tightening and restoration of
fixed investment. On the supply side, economic
supply chains. Pandemic-induced loosening in
activity was supported by the improvement in
fiscal policy exerted upward pressures on the
the manufacturing sector’s profitability which
global public debt-GDP ratio in an environment
benefitted from lower input prices as well as the
of sluggish growth and elevated interest rates.
sustained momentum in services activity, offsetting
Global merchandise trade volume contracted
the slowdown in the agricultural sector.
by 1.2 per cent in 2023 from an expansion of
3.0 per cent in 20222, dragged down by rising II.1.3 Headline inflation moderated during
trade restrictions and a rotation of demand 2023-24 into the tolerance band on the back of
away from goods to services. Global financial anti-inflationary monetary policy, active supply
markets exhibited bouts of volatility in response management measures, and corrections in global
to fluctuating perceptions on the monetary policy commodity prices. Core inflation exhibited a
trajectory among market participants in spite of broad-based disinflation and has moved below 4
high for longer stances articulated by central per cent from December 2023.
1
World Economic Outlook, April 2024, IMF.
2
Global Trade Outlook and Statistics, April 2024, WTO.
3
Refer to footnote 4 of Chapter I of this Report.
14
ECONOMIC REVIEW
II.1.4 General government finances exhibited II.2 THE REAL ECONOMY

improvement in terms of key deficit and
II.2.1 The Indian economy exhibited resilience
debt indicators as the commitment to fiscal
during 2023-24, notwithstanding persistent
consolidation took hold amidst a directing of public
headwinds from subdued external demand,
expenditure towards growth-supportive measures
protracted geopolitical tensions and volatile
with greater focus on capex. Tax revenues were
global financial markets. Real GDP growth
buoyant, supported by resilient economic activity
was sustained at 7 per cent and above for the
and improving compliance.
third successive year in 2023-24, supported by
II.1.5 During the year, domestic financial robust growth in fixed investment on the back of
markets evolved in an orderly manner. Money the government’s focus on capital expenditure.
market rates hardened with the ebbing of liquidity On the supply side, economic activity was lifted
surplus, partly due to an increase in government by the boost to the manufacturing sector’s
cash balances. Issuances of certificates of deposit profitability from the correction in input prices
(CDs) increased amidst sustained credit demand. and sustained momentum in services activity,
After remaining range-bound during H1:2023-24, even as the agricultural sector activity exhibited
sovereign bond yields softened on lower domestic a slowdown.
inflation, announcement of inclusion of Indian
II.2.2 An assessment of aggregate demand
sovereign bonds in major global bond indices,
and its major components is etched out in sub-
and lower than expected market borrowings
section 2. The developments in aggregate
programme of Government of India (GoI)
supply conditions in terms of the performance of
announced in the interim Union Budget 2024-25.
agriculture, industry and services are presented
Equity markets registered strong gains on buoyant
in sub-section 3. Employment and labour market
economic activity and corporate performance. The
dynamics are discussed in sub-section 4, with
Indian rupee (INR) exhibited stability, supported
concluding observations in sub-section 5.
by robust domestic prospects and improvements
in India’s external position. The moderation in the 2. Aggregate Demand
current account deficit (CAD) amidst large capital II.2.3 Real GDP rose by 7.6 per cent in 2023-24
inflows enabled addition to foreign exchange as compared with 7.0 per cent growth in 2022-23,
reserves. according to the second advance estimates (SAE)
II.1.6 Against this backdrop, the rest of the of the National Statistical Office (NSO) [Table
chapter is structured into six sections. An analysis II.2.1 and Appendix Table 1]. This acceleration
of the real economy is presented in section 2, was powered by solid expansion in investment
followed by a detailed analysis of inflation and demand, which more than offset the slowdown
its drivers in section 3. The developments in in private consumption demand and the drag
monetary aggregates and financial markets are from external demand (Appendix Table 2). Real
presented in sections 4 and 5, respectively. The GDP growth was robust at 8.2 per cent during
evolution of government finances (centre and 2023-24 (April-December). The acceleration
states) is discussed in section 6, and external in momentum in Q2 sustained in Q3:2023-24
sector dynamics are covered in section 7. (Chart II.2.1).
15
Consumption Table II.2.1: Real GDP Growth
II.2.4 Private final consumption expenditure Component Growth (per cent)
(PFCE) – the mainstay of domestic aggregate 2019-20 2020-21 2021-22 2022-23 2023-24
demand – slackened in 2023-24. Deficient and 1 2 3 4 5 6
uneven south-west and north-east monsoon I. Total 5.0 -4.6 9.8 7.1 3.0
Consumption
pulled down both kharif and rabi production. Expenditure
Two-wheeler sales, an indicator of rural demand, Private 5.2 -5.3 11.7 6.8 3.0
Government 3.9 -0.8 0.0 9.0 3.0
picked up in H2:2023-24. Demand for work under
II. G
ross Capital -6.0 -10.6 25.4 2.0 10.2
the Mahatma Gandhi National Rural Employment Formation
Gross Fixed 1.1 -7.1 17.5 6.6 10.2
Guarantee Act (MGNREGA) also tapered in H2, Capital
suggesting some recovery in rural demand. Urban Formation
Change in -58.7 -76.4 525.4 14.5 5.0
demand was supported by improvement in labour Stocks
market conditions, higher disposable incomes, Valuables -14.2 29.9 32.5 -19.1 13.8
tapering of retail inflation and double digit growth III. Net Exports
Exports -3.4 -7.0 29.6 13.4 1.5
in retail credit. Domestic air passenger traffic, Imports -0.8 -12.6 22.1 10.6 10.9
railway passenger traffic and passenger vehicle IV. GDP 3.9 -5.8 9.7 7.0 7.6
sales recorded robust growth. Both collection Source: NSO.
of goods and services tax (GST) and issuance
of E-way bills registered steady expansion. Investment and Saving
Government final consumption expenditure II.2.5 The rate of gross domestic investment
(GFCE) displayed a modest expansion in 2023-24 in the Indian economy, measured by the ratio of
as the government remained committed towards gross capital formation (GCF) to GDP at current
its fiscal consolidation path (Chart II.2.2). prices, moderated marginally to 32.2 per cent
Chart II.2.1: Real GDP Growth - Quarterly Chart II.2.2: Weighted Contribution to GDP Growth
50 16
9.7
40 12
8.3 7.6
6.8 6.5 7.0
30 8
Percentage points
3.9
20 4
Per cent
10 0
0
-4
-10 -5.8
-8
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
-20
-30
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2021-22 2022-23 2023-24 Net Exports Gross Fixed Capital Formation
Government Final Consumption Expenditure
Y-o-Y 3Q MA - SAAR Q-o-Q SAAR Private Final Consumption Expenditure
GDP (Y-o-Y growth, per cent)
SAAR - Seasonally Adjusted Annualised Rate.
Note: Seasonal factors have been estimated using the full sample period Note: Component-wise contributions do not add up to the growth rate as
(till Q3:2023-24) with appropriate controls for outliers. change in stocks, valuables and statistical discrepancies are not included.
Source: NSO and RBI staff estimates. Source: NSO.
16
ECONOMIC REVIEW
Chart II.2.3: Indicators of Investment Demand capital formation (GFCF) to GDP inched up to
34.1 per cent in 2023-24 from 33.3 per cent in the
previous year. Among the components of GFCF,
the construction sector gathered traction as
evident in robust growth in its proximate coincident
indicators – steel consumption and cement
production (Chart II.2.3). Capacity utilisation (CU)
of the manufacturing sector has remained above
its long-term average. It increased to 74.7 per cent
in Q3:2023-24 from 74.0 per cent in the previous
quarter4. The seasonally adjusted CU was 74.6
per cent in Q3:2023-24.
Steel Consumption Cement Production
II.2.6 Gross domestic saving as per cent to gross
IIP Capital Goods Imports of Capital Goods
Source: Joint Plant Committee, Office of Economic Adviser, NSO and

national disposable income (GNDI) moderated to
Directorate General of Commercial Intelligence and Statistics (DGCI&S).
29.7 per cent in 2022-23 from 30.8 per cent in the
preceding year, due to drop in household financial
in 2022-23 from 32.4 per cent in the preceding
saving (net) to 5.2 per cent of GNDI in 2022-23
year. Available information for the constituents from 7.2 per cent in the previous year (Table
of the GCF for 2023-24 indicate an uptick in II.2.2 and Appendix Table 3) as households drew
investment, led by the government’s sustained down excess saving accumulated during the
thrust on infrastructure, coupled with ebullience in pandemic to fund consumption and investment.
the housing sector. The ratio of real gross fixed In consonance with the global trend, India had
Table II.2.2: Financial Saving of Household Sector

(Per cent of GNDI)
Item 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
1 2 3 4 5 6 7 8 9 10 11
A. Gross Financial Saving 10.4 9.9 10.7 10.4 11.9 11.8 11.4 15.2 10.9 10.9
of which:
1. Currency 0.9 1.0 1.4 -2.1 2.8 1.4 1.4 1.9 1.1 0.9
2. Deposits 5.8 4.8 4.6 6.3 3.0 4.2 4.3 6.2 3.5 4.0
3. Shares and Debentures 0.2 0.2 0.2 1.1 1.0 0.9 0.5 0.5 0.9 0.8
4. Claims on Government 0.2 0.0 0.5 0.7 0.9 1.1 1.3 1.3 1.1 0.9
5. Insurance Funds 1.8 2.4 1.9 2.3 2.0 2.0 1.7 2.8 2.0 2.0
6. Provident and Pension Funds 1.5 1.5 2.1 2.1 2.1 2.1 2.2 2.5 2.3 2.3
B. Financial Liabilities 3.1 3.0 2.7 3.0 4.3 4.0 3.8 3.7 3.8 5.7
C. Net Financial Saving (A-B) 7.2 6.9 7.9 7.3 7.5 7.8 7.6 11.6 7.2 5.2
GNDI: Gross National Disposable Income.

Note: Figures may not add up to total due to rounding off of the numbers.
Source: NSO.
4
Based on order books, inventories and capacity utilisation survey (OBICUS) of the Reserve Bank.
17
Chart II.2.4: Stock of Excess Household Savings
a. Emerging Economies b. Advanced Economies

16
14
12
10
Per cent of GDP
8
6
4
2 0.7
0
-2
2019:Q4
2020:Q1
2020:Q2
2020:Q3
2020:Q4
2021:Q1
2021:Q2
2021:Q3
2021:Q4
2022:Q1
2022:Q2
2022:Q3
2022:Q4
2023:Q1
China South Korea Singapore Israel India Australia Canada Japan UK US
Note: Data for India comprise stock of excess household financial savings.
Source: Soyres et. al., (2023)5 and RBI staff estimates.
experienced a spike in household financial saving intensive services. As a result, the accumulated
(net) to 11.6 per cent of GNDI during 2020-21, stock of excess financial savings6 rose to 4.1
as pandemic-induced restrictions on mobility per cent of GDP by end-March 2021; with the
and spending curtailed consumption of contact- ebbing of the pandemic and release of the pent-
up demand, the stock of excess financial savings
Chart II.2.5: Sectoral Resource Gap moderated to 0.7 per cent of GDP as at end-
March 2023 (Chart II.2.4).
II.2.7 The saving-investment gap widened during

2022-23, driven by non-financial corporations,
reflecting the revival in investment demand along
with a moderation in the saving rate (Chart II.2.5).
The drawdown by the general government sector
reduced further on the back of continuing fiscal
consolidation.
3. Aggregate Supply
II.2.8 As per the SAE of the NSO, aggregate

supply, measured by real gross value added (GVA)
NPISH: Non-profit Institutions Serving Households.
at basic prices, expanded by 6.9 per cent in 2023-
Source: NSO and RBI staff estimates.
24 as compared with 6.7 per cent in 2022-23,
5
de Soyres, Francois, Dylan Moore, and Julio L. Ortiz (2023), ‘Accumulated Savings During the Pandemic: An International Comparison
with Historical Perspective’, FEDS Notes, Washington DC.
6
Flow of excess savings (savings rate minus trend savings rate) is calculated as deviation from the predicted savings rate using a Hamilton
trend. Stock begins accumulating from 0 at t=-1, where t=0 is the first period of low growth due to COVID-19.
18
ECONOMIC REVIEW
Table II.2.3: Real GVA Growth

(Per cent)
Sector 2019-20 2020-21 2021-22 2022-23 2023-24

1 2 3 4 5 6
I. Agriculture, Forestry and Fishing 6.2 4.0 4.6 4.7 0.7
II. Industry -2.5 1.1 9.6 -0.6 8.3
II.1 Mining and Quarrying -3.0 -8.2 6.3 1.9 8.1
II.2 Manufacturing -3.0 3.1 10.0 -2.2 8.5
II.3 Electricity, Gas, Water Supply and Other Utility Services 2.3 -4.2 10.3 9.4 7.5
III. Services 5.8 -7.9 10.6 9.9 7.9
III.1 Construction 1.6 -4.6 19.9 9.4 10.7
III.2 Trade, Hotels, Transport, Communication and Services Related to
6.0 -19.9 15.2 12.0 6.5
Broadcasting
III.3 Financial, Real Estate and Professional Services 6.8 1.9 5.7 9.1 8.2
III.4 P
ublic Administration, Defence and Other Services 6.6 -7.6 7.5 8.9 7.7
IV. GVA at Basic Prices 3.9 -4.1 9.4 6.7 6.9
propelled by the industrial and the services Agriculture and Allied Activities
sectors, while agriculture tapered in 2023-24
II.2.9 The agriculture and allied activities sector
(Table II.2.3). The momentum remained strong in
faced headwinds from the uneven and deficient
Q2 and Q3:2023-24 (Chart II.2.6).
south-west monsoon (SWM) rainfall coinciding
with strengthening El Nino 7 conditions. The
Chart II.2.6: Real GVA Growth - Quarterly
overall SWM rainfall in 2023 (June-September)
50
was 6 per cent below long period average (LPA)8
40
at the all-India level (Chart II.2.7a). The late onset
30
of the SWM, along with temporal and spatial
20
uneven precipitation, delayed the start of kharif
Per cent
10
sowing and a shortfall occurred in overall kharif
0
sowing. The north-east monsoon (NEM) [October-
-10
December] also ended with a rainfall deficit (9 per
-20
-30
cent). The below-normal SWM and NEM rainfall
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 depleted reservoir storage levels (Chart II.2.7b).
2021-22 2022-23 2023-24
Y-o-Y growth 3Q MA SAAR Q-o-Q SAAR

II.2.10 As per the SAE, the production of kharif
SAAR - Seasonally Adjusted Annualised Rate.
and rabi foodgrains in 2023-24 was 1.3 per cent
Note: Seasonal factors have been estimated using the full sample period
(till Q3:2023-24) with appropriate controls for outliers. lower than the final estimates of the previous year
(Table II.2.4). The output of millets could benefit
7
Historically, the SWM monsoon rainfall has been in deficit for 14 out of 23 El Nino years. 1997 was the last El Nino year during which the
SWM season received normal rainfall.
8
As per the India Meteorological Department (IMD), normal rainfall range is 96-104 per cent of LPA.
19
Chart II.2.7: Rainfall and Reservoir Levels
a. South-West Monsoon (Spatial) b. Reservoir Level (as on March 28)

140 60
Per cent of full reservoir level

119 122
120 50 47
106 44
101 101 100 42
92 94
100
40 36
Per cent of LPA
82 82 32
80
30
22
60
20
40
10
20
0
0
Northern
Eastern
Western
Central
Southern
All India
East and North Central South All India
Northeast West India Peninsula
India India
2022 2023 10-year Average March 28, 2023 March 28, 2024
Source: IMD and Central Water Commission (CWC), GoI.
from productivity gains (Box II.2.1). As per the II.2.11 The minimum support prices (MSPs) for
First Advance Estimates (FAE), the production both kharif and rabi seasons 2023-24 ensured a
of horticultural crops during 2023-24 was 0.1 per minimum return of 50 per cent over the cost of
cent below the final estimates of 2022-23, mainly production9 for all crops. The overall public stock
due to lower production in vegetables. of foodgrains as on March 31, 2024 stood at 2.9
Table II.2.4: Agricultural Crop Production 2023-24*

(Lakh tonne)
Crop 2022-23 2023-24 2023-24

Final Estimates** Second Advance Estimates (SAE) Variation
(SAE) Over 2022-23 Final Estimate
(per cent)
1 2 3 4
1. Foodgrains 3,135.5 3,093.5 -1.3
Rice 1,255.2 1,238.2 -1.4
Wheat 1,105.5 1,120.2 1.3
Nutri/Coarse Cereals 535.0 500.7 -6.4
Pulses 239.8 234.4 -2.2
Tur 33.1 33.4 0.8
Gram 122.7 121.6 -0.9
Urad 24.0 20.6 -14.4
Moong 18.3 15.1 -17.6
2. Oilseeds 403.0 366.0 -9.2
3. Sugarcane 4,905.3 4,464.3 -9.0
4. Cotton # 336.6 323.1 -4.0
5. Jute & Mesta ## 93.9 96.3 2.6
*: Kharif and Rabi crops. **: Excluding summer crops. #: Lakh bales of 170 kg each. ##: Lakh bales of 180 kg each.
Source: Ministry of Agriculture and Farmers Welfare, GoI.
9
Actual paid out cost plus imputed value of family labour (A2+FL).
20
ECONOMIC REVIEW
Box II.2.1
Boosting Millet Production in India: Identifying the Supply Side Drivers
India accounts for almost 80 per cent of Asia’s and 20 lower than those of major producers around the world
per cent of global millet production10. The acreage and (Chart 1d).
production of millets have, however, stagnated over the The plot level comprehensive cost of cultivation survey
years (Charts 1a and 1b), partly reflecting incentives (CCCS) data for 2021-22 show a significant yield gap
for cultivation of fine cereals through MSP-backed from the frontier11 farmers, implying considerable scope
procurement and a visible shift in consumer preferences for improvement. Against this backdrop, results from a
towards fine cereals (Rao, 2021). Millets are typically generalised linear model using the CCCS dataset for
grown under rainfed conditions with no/minimal irrigation 2021-22 show a significant dependence of the yield gap12
(Chart 1c). The productivity of millets in India remains for bajra on the rainfall position (Table 1).
Chart 1: Production of Major Cereals vis-à-vis Millets in India
d. Productivity of Millets* – Major Producers (2022)

3.5
3.0
3.0
2.5
2.5
Tonne per hectare
2.0
1.5
1.4
1.5
1.0
0.5
0.0
India
Ethiopia
China
Russia
*: Excluding jowar.
Note: Data are based on 5-year moving average.
Source: Ministry of Agriculture and Farmers Welfare, GoI and FAOSTAT, UNO. (Contd.)
10
‘India’s Foodgrains Production Touched a Record 315.7 Million Tonnes in 2021-22’, PIB, January 31, 2023.
11
The maximum achievable (potential) yield is the average yield of the most productive farm plots (top 10 per cent of the surveyed sample
for each of the states). The yield gap is defined as the difference between potential and actual yield.
12
The outcome variable (yield gap) is in percentage terms; therefore, values range from zero (no yield gap) to maximum of one or 100 per
cent. Due to this nature of the outcome variable, a fractional logistic regression model was selected for the analysis following Papke and
Wooldridge (1996). It is hypothesised that a greater input use is associated with a lower level of yield gap.
21
Table 1: Determinants of Yield Gap in Bajra Production

Dependent Variable: Yield Gap
Model 1 Model 2 Model 3 Model 4
Rainfall
Actual Rainfall (millimetre) -1.27*** -0.98*** - -
(0.26) (0.23)
Deviation from LPA - - -0.04** -0.04**
(1 = Normal and Above Normal Rainfall@)
(0.02) (0.02)
Input Variables
Labour (hours/hectare) -0.60* -0.84*** -0.88*** -0.85***
(0.33) (0.27) (0.29) (0.28)
Irrigation (hours/hectare) -0.01 0.01 0.02 -
(0.02) (0.01) (0.01)
Ownership of Irrigation (1=owned) - - - -0.01*
(0.01)
Seed (kg/hectare) 0.16 0.15 0.12 0.10
(0.15) (0.10) (0.11) (0.11)
Fertiliser (kg/hectare) -0.17*** -0.16*** -0.17*** -0.16***
(0.04) (0.04) (0.05) (0.04)
Technology Variables
Usage of Hybrid Seeds -0.06** -0.05** -0.03 -0.04*
(1= adopted)
(0.03) (0.02) (0.02) (0.02)
Machine (hours/hectare) -0.19** -0.11* -0.12** -0.13**
(0.09) (0.07) (0.06) (0.06)
Demand Variables
Lagged Price# (₹/quintal) -1.73 - - -
(1.55) - - -
Expected Net Returns# (1= Positive returns) - -0.14*** -0.15*** -0.14***
- (0.02) (0.02) (0.02)
State Dummy Yes Yes Yes Yes
Number of Observations 448 448 427 427
Log Pseudolikelihood -288.67 -282.00 -272.17 -272.13
-: Not applicable.
***, ** and * indicate significance levels at 1 per cent, 5 per cent and 10 per cent, respectively.
@: Rainfall deviation of +/-19 per cent from LPA is considered as normal at district level.
#: Based on previous year’s prices.
Note: 1. Figures in parentheses are robust standard errors (calculated using the delta method and clustered at the block level).
2. Data for all the variables have been used at the plot level, except for prices and rainfall which are taken at district-level.
Source: RBI staff estimates.
Although millets are considered drought resistant crops, References:

a minimal but assured13 irrigation would be critical in bridging 1. Papke, L. E., and Wooldridge, J. M. (1996), ‘Econometric
the yield gap. Labour, fertiliser and machine usage are also Methods for Fractional Response Variables with an
negatively and significantly related to the yield gap. The Application to 401 (k) Plan Participation Rates’, Journal
adoption of hybrid seeds improves yields. Higher expected of Applied Econometrics, 11(6), 619-632.
net returns (proxied by using lagged prices and prevailing 2. Rao, B.D., Bhandari, R. and Tonapi, V.A. K. (2021),
‘White Paper on Millets – A Policy Note on Mainstreaming
cost) are also likely to encourage farmers to invest more in
Millets for Nutrition Security’, ICAR-Indian Institute of
high-yielding inputs and thus reduce the yield gap.
Millets Research (IIMR), Hyderabad, India.
13
Explained by dummy of ownership of irrigation in Table 1.
22
ECONOMIC REVIEW
Chart II.2.8: Monthly Position of Stock and Buffer Norm Chart II.2.9: Organised Manufacturing Firms
1,200 80
49.7
1,000 60
Growth (per cent, y-o-y)

800 40
Lakh tonne
11.7
20
600
0
400
210.4
-20
200
-40
0
Mar-22
Jun-22
Mar-23
Dec-21
Jun-23
Sep-22
Dec-22
Sep-23
Dec-23
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Jan-23
Mar-23
May-23
Jul-23
Sep-23
Nov-23
Jan-24
Mar-24
Net Profit Salaries and Wages Interest Expenses
Total Stock Norm
Net Sales Input Costs
Source: Ministry of Consumer Affairs, Food and Public Distribution, GoI. Source: CMIE Industry Outlook.
times the total quarterly buffer norm (Chart II.2.8). II.2.13 Industrial output as measured by the
On November 29, 2023, the government extended index of industrial production (IIP) expanded
free distribution of foodgrains under the Pradhan by 5.8 per cent during 2023-24 as compared
Mantri Garib Kalyan Anna Yojana (PMGKAY) for with 5.2 per cent in the previous year (Chart
five more years, effective January 1, 2024.
II.2.10a). Within the manufacturing sector, 13 of
Industrial Sector 23 industry groups recorded y-o-y expansion, led
II.2.12 India’s industrial sector registered a strong by transport equipment, motor vehicles and basic
growth in 2023-24, aided by healthy corporate metals. In terms of the use-based classification,
profits on the back of easing input cost pressures all categories recorded y-o-y expansion
(Chart II.2.9). (Chart II.2.10b).
Chart II.2.10: Index of Industrial Production
a. Sectoral Growth h
30
23.9
20
Per cent (y-o-y)
10
7.0 6.1 5.5
3.8 2.3
1.9
0
-10
-20 -20.8
-30
H1 H2 H1 H2 H1 H2 H1 H2
2020-21 2021-22 2022-23 2023-24
Mining Manufacturing Electricity IIP
Source: MoSPI, GoI.
23
II.2.14 The manufacturing sector gained from financial, real estate and professional services.
the production-linked incentive (PLI) scheme. As Proximate indicators of services sector such as
of December 2023, actual investments of ₹1.07 air traffic, railway freight, automobile sales, steel
lakh crore was realised, which has resulted in consumption, GST E-way bills and foreign tourist
production/sales of ₹8.7 lakh crore, creation arrivals recorded buoyant expansion (Table II.2.5).
of over 7.0 lakh jobs directly and indirectly, and
II.2.17 India’s construction sector, currently
exports surpassing ₹3.4 lakh crore. Incentives
ranking as the world’s third largest, posted
totalling around ₹4,415 crore have been disbursed
strong growth in 2023-24. Steel consumption
since the beginning of the scheme. Electronics
and cement production expanded by 11.9 per
and pharmaceuticals have been the major
cent and 9.1 per cent, respectively, in 2023-24.
beneficiaries of the PLI scheme.
Pent-up demand and robust consumer sentiment
II.2.15 The mining sector index recorded 7.5 per
for home ownership seen since the pandemic,
cent y-o-y growth in 2023-24, led by expansion
maintained momentum in 2023-24 (Chart II.2.12).
in coal production. Renewable energy, which
The information technology (IT) sector remained
accounts for around 13 per cent of the overall
muted in 2023-24, impeded by global headwinds.
power generation, recorded a healthy growth
The hospitality sector made further gains, with
during 2023-24 (Chart II.2.11). India had a total
sustained leisure and corporate travel demand. In
renewable energy capacity of 190.6 gigawatts
the financial sector, aggregate deposits and bank
(GW) as on March 31, 2024.
credit to the commercial sector recorded double
Services Sector digit expansion. Public administration, defence,
II.2.16 The services sector growth in 2023-24 and other services (PADO) registered a steady
was boosted by construction activity and growth.
Chart II.2.11: Renewable Power Generation Chart II.2.12: Housing Unit Sales
70 16
14
Power generation (thousand GWh)
60
12
50
10
40
Per cent
8
30
6
20
4
10 2
0 0
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Sep-23
Renewable Power Generation
Renewable Share in Total Power Generation (RHS)
GWh: Gigawatt hours.

Source: Central Electricity Authority. Source: PropTiger.
24
ECONOMIC REVIEW
Table II.2.5: High Frequency Indicators - Growth Rate

(Per cent, y-o-y)
2022-23 2023-24
Indicators Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1 2 3 4 5 6 7 8 9
Urban Demand
Automobiles Sales 51.8 16.9 10.0 8.7 12.2 0.9 20.6 21.7
Passenger Vehicles Sales 33.9 34.4 21.4 10.7 9.5 5.7 8.7 10.8
Agriculture / Rural Demand
Domestic Sales of Tractors 15.8 4.8 10.5 18.7 -1.9 -5.8 -4.9 -22.9
Two-Wheeler Sales 55.0 13.6 7.2 6.7 11.2 -1.6 22.6 24.9
Three-Wheeler Sales 211.3 71.2 68.2 84.4 89.6 62.2 35.2 7.3
Transport
Vahan Total Registration 61.3 1.4 19.0 15.1 6.0 13.9 10.7 10.8
Domestic Air Passenger Traffic 206.2 64.1 18.5 52.2 19.1 23.0 9.1 5.2
International Air Passenger Traffic 403.3 263.9 98.1 93.6 35.0 21.6 18.5 17.0
Domestic Air Cargo 32.1 10.0 -3 0.5 -1.0 -1.0 9.5 10.0
International Air Cargo -1.7 -3.8 -11 -2.8 0.1 3.7 10.7 23.9
Freight Traffic Net Tonne Kilometre@ 19.4 14.5 -66.7 4.7 -3.5 0.9 4.6 -
Freight Traffic Freight Originating* 11.8 8.4 3.2 -33.5 1.1 4.8 6.4 8.2
Port Cargo 9.3 12.8 5.2 8.6 0.8 2.9 10.0 2.7
Domestic Trade
GST E-way Bill 45.6 20.1 17.2 18.1 15.8 15.0 17.1 16.3
GST E-way Bill Intra-State 46.6 23.8 23.6 22.3 19.3 18.4 22.1 18.2
GST E-way Bill Inter-State 43.8 14.6 7.4 11.4 10.0 9.3 8.6 13.1
GST Revenue 34.5 27.5 14.2 12.6 11.6 10.6 12.9 11.3
Construction
Steel Consumption 10.0 14.3 16.1 12.9 11.1 16.8 11.6 8.6
Cement Production 17.3 4.9 10.1 3.8 12.7 10.3 5.1 8.5
Tourism and Hospitality
Hotel Occupancy Rate 64.7 62.2 65.0 66.3 63.0 60.9 65.2 67.8
Foreign Tourist Arrivals* 895.4 521.5 218.2 121.0 38.2 17.5 14.0 13.1
Contraction Expansion
@: Data for Q3:2023-24 relate to October 2023. *: Data for Q4:2023-24 are for January-February 2024. -: Not available.
Source: Society of Indian Automobile Manufacturers (SIAM); Tractor and Mechanization Association; Vahan Registration Portal; Airports
Authority of India; Ministry of Railways, GoI; Indian Ports Association; Goods and Services Tax Network (GSTN); Joint Plant Committee, Office
of Economic Adviser, NSO; Ministry of Commerce and Industry, GoI; HVS Anarock, and Ministry of Tourism, GoI.
II.2.18 The services sector composite index 4. Employment

(SSCI)14, which tracks activity in construction,
trade, transport and financial services and is a II.2.19 Labour market conditions improved
coincident indicator of GVA growth in the services during 2022-23 and 2023-24. According to the
sector excluding PADO, remained at an elevated annual periodic labour force survey (PLFS), the
level in 2023-24 (Chart II.2.13). unemployment rate (UR) declined further to 3.2
14
SSCI is constructed by suitably extracting and combining the information collected from high frequency indicators, namely, steel
consumption, cement production, cargo handled at major ports, sale/production of commercial vehicles, railway freight traffic, air passenger/
freight traffic, tourist arrivals, non-oil imports, bank credit and deposit.
25
Chart II.2.13: Growth in Services Sector ratio (WPR) for 2022-23 were the highest since
(Excluding PADO) and Services Sector Composite Index the inception of the PLFS series in 2017-18 (Chart
II.2.14a). The employment situation improved in
both rural and urban areas (Chart II.2.14b).
II.2.20 As per the quarterly PLFS, which covers

Per cent (y-o-y)
urban areas, the LFPR as well as the worker-
SSCI
population ratio during Q4:2023-24 was the
highest since the survey’s inception for persons
aged 15 years and above, which pushed the
unemployment rate to one of the lowest levels
at 6.7 per cent (Chart II.2.15). The organised
GVA Growth in Services Excluding PADO SSCI (RHS)

sector employment, as measured by payroll data,
*: SSCI for March 2024 quarter is based on partial data available.
also indicated gains in 2023-24 (Chart II.2.16).
II.2.21 Productivity growth is a key driver of
medium-term growth. The important factors
per cent in 2022-23 (from 4.1 per cent in the
contributing to productivity growth in India since
previous year) alongside a rise in the labour force
the 1990s include resource reallocation from low-
participation rate (LFPR) to 57.9 per cent from 55.2 productive to high-productive sectors and rapid
per cent , with the progressive normalisation after
15
penetration of information and communication
the pandemic. LFPR and the worker population technology (ICT)16 [Box II.2.2].
Chart II.2.14: Labour Market Indicators – Annual PLFS
a. All India b. Rural, Urban

57.9 65 9
7.7 7.6
58 7 8
6.9 6.7
56 60 6.3 7
56 6
54 5.3 5.4 6
5
55
Per cent
Per cent
52 5 5
3.9
Per cent
Per cent
50 3.3 3.2 4
4 50
48 2.4 3
46 2
3.2 3 45
44 1
42 2 40 0
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
Labour Force Participation Rate Worker Population Ratio LFPR (Rural) LFPR (Urban)
Unemployment Rate (RHS) UR (Rural) [RHS] UR (Urban) [RHS]
Source: MoSPI, GoI.
15
Annual indicators are based on usual status (principal status + subsidiary status) while quarterly PLFS indicators are based on current
weekly status (CWS). All indicators are for age 15 years and above.
16
ICT sector combines manufacturing and services industries, whose products fulfil the function of information processing and communication
by electronic means, including transmission and display (OECD, 2020).
26
ECONOMIC REVIEW
Chart II.2.15: Quarterly Labour Market Indicators – Chart II.2.16: Employees’ Provident Fund and National
Urban Areas Pension Scheme - Subscriber Additions

Per cent
Per cent
Labour Force Participation Rate Worker Population Ratio
Employees’ Provident Fund National Pension Scheme (RHS)
Unemployment Rate (RHS)
Source: MoSPI, GoI. Source: MoSPI and Ministry of Labour and Employment, GoI.
Box II.2.2
Productivity and Digitalisation in India
The effect of digitalisation17 on productivity is assessed ∆lnLp≡υ̅ ictK ∆lnICTk+υ̅ ictnonK ∆lnICTnonk+υ̅ L ΔlnLQ + ∆TFP .... (2)19
through two separate channels, viz., via the role of ICT as
The decomposition results20 show that the contribution of
an input in driving output and labour productivity growth in
the economy; and by estimating the productivity potentials ICT capital services to output growth increased from 5.0
by examining the differential between ICT and non-ICT per cent during 1981-90 to 13.2 per cent during 1992-
sectors (Das and Erumban, 2016). 2023. The contribution of ICT capital deepening to labour
Role of ICT as an Input in Production Function productivity growth increased from 8.4 per cent to 15.3 per
cent over the same period.
For India, estimates of productivity and output growth were
constructed for 27 KLEMS industries from 1980 to 2020 Effect of ICT Sectors on TFP Growth
as follows:
The 27 KLEMS industries have been segmented into ICT
∆lnY ≡ υ̅ ictK ∆lnICTk+υ̅ ictnonK ∆lnICTnonk+υ̅ L ΔlnL+∆TFP .... (1)18 and non-ICT sectors to examine the productivity differential
In the next stage, the decomposition of labour productivity between ICT and non-ICT sectors using the following
growth is obtained as: equation:
(Contd.)
17
As per the OECD (2020), the extent of digitalisation can be measured by estimating the contribution of the ICT sector to economic growth.
18
Where the aggregate value added (Y) is obtained by summing industry value-added growth. ∆lnK and ∆lnL denote the growth in factor
inputs - capital and labour. The capital input is segregated into ICT capital and non-ICT capital. They are denoted as ICTK and ICTnonK,
respectively. υ̅ ictK and υ̅ ictnonK denote the two-period average compensation share of ICT and non-ICT capital in aggregate value added. υ̅ L is
the two-period average share of labour compensation in aggregate value added. ∆TFP represents aggregate TFP growth.
19
Where ∆lnLp represents labour productivity growth, ∆lnICTk and ∆lnICTnonk represent growth in capital deepening in ICT and non-ICT
industries, respectively, and ΔlnLQ represents growth in labour quality.
20
1991 and 2020, being the BoP crisis and COVID years, respectively, are removed from the analysis due to negative labour productivity
growth.
27
Table 1: Productivity and ICT Sector

Period/ Variable Dependent Variable (ΔP):
1980-2020 1980-1990 1990-2000 2000-2010 2010-2020
1 2 3 4 5 6
ICT Sector Dummy 0.16*** 0.31* 0.52 0.68* -0.31
(3.46) (1.83) (1.39) (1.99) (-0.91)
Non-ICT Sector Dummy 0.12* 0.27 0.45 0.60* -0.33
(2.69) (1.56) (1.24) (1.82) (-0.99)
Difference between ICT and Non-ICT 0.04*** 0.04*** 0.07* 0.07** 0.01
(5.46) (9.15) (2.69) (3.24) (1.33)
Number of Observations 1053 243 243 243 243
***, ** and * indicate significance levels at 1 per cent, 5 per cent and 10 per cent, respectively.
Note: 1. The models include controls for labour quality, capital stock, capital composition, industry, and year-fixed effects.
2. Figures in parentheses are t-statistics.
∆Pit = α + β * ICT Dummy + γXit + ∈it .... (3)21 References:
The results show that, on average, the ICT sector’s 1. Dieppe, A., Kilic Celik, S., and Kindberg-Hanlon, G.
productivity fared better than the non-ICT sector for the (2020), ‘Global Productivity: Trends. Drivers, and
whole sample period (1980-2020) and the decadal sub- Policies’, The World Bank, Washington.
periods (Table 1). The productivity impact of ICT continued 2. Erumban, A. A., and Das, D. K. (2016), ‘Information and
to grow during 1980 to 2010, refuting Solow’s productivity Communication Technology and Economic Growth in
paradox for India22. India’, Telecommunications Policy, 40 (5), 412-431.
The emergence of the paradox in India for the more recent 3. OECD (2020), ‘A Roadmap Toward a Common
period (2010-2020), however, is generally consistent Framework for Measuring the Digital Economy’, Report
with the post-GFC productivity slowdown despite rising for the G20 Digital Economy Task Force.
digitisation in many parts of the world, reflecting uneven 4. Van Ark, B. (2016), ‘The Productivity Paradox of the New
access to digital technologies or their quality; and slow Digital Economy’, International Productivity Monitor, 31,
diffusion of technology benefits between the leading and 3-18.
the lagging firms (Dieppe et. al., 2020).
5. Conclusion buoyant, given the government’s sustained focus

on capital expenditure while maintaining fiscal
II.2.22 The domestic economy exhibited robust
consolidation. Strong corporate balance sheets,
growth in 2023-24, underpinned by strong
rising capacity utilisation, double digit credit
investment activity, amidst subdued external growth, healthy financial sector, and the ongoing
demand. Manufacturing and services sectors were disinflation are likely to be other growth levers.
the key drivers on the supply side while agricultural Lingering geopolitical tensions, geoeconomic
activity slowed down due to uneven and deficient fragmentation and adverse climate shocks impart
monsoon rainfall. The growth outlook remains downside risks to the outlook.
21
Where ∆Pit is the annual productivity growth rate, i is the industry, and t is the year (1980-2020). ICT is the industry dummy, which takes
the value 1, if the industry belongs to the ICT sector and 0 otherwise. Xit is a vector of control variables including labour quality, capital quality,
total capital stock, industry fixed effects and year fixed effect. α is the estimated average productivity for the industry belonging to the non-ICT
sector, and α + β is the estimated average productivity for the industry belonging to the ICT sector. Therefore, β shows the difference in the
productivity growth rate of ICT and non-ICT industry.
22
The emergence of new digital technologies has coincided with a decline in productivity in many economies, a phenomenon often known
as the ‘Solow Productivity Paradox’ (Van Ark 2016).
28
ECONOMIC REVIEW
II.3 PRICE SITUATION Chart II.3.1: Inflation Across Major Components
II.3.1 In India, headline inflation23 moderated 18

16
during 2023-24 into the tolerance band, in 14
response to monetary policy tightening, supply

12
10
management measures and easing of input cost 8 7.7
Per cent
6
pressures (see Chapter III). Food inflation turned 4 4.9
3.3
2
volatile due to recurrent supply shocks. On the 0
other hand, core inflation eased on a sustained -2

-3.4
-4
basis, recording the lowest print in March 2024
Apr-12
Jul-13
Mar-14
Nov-14
Jul-15
Mar-16
Nov-16
Jul-17
Mar-18
Nov-18
Jul-19
Mar-20
Nov-20
Jul-21
Mar-22
Nov-22
Jul-23
Mar-24
in the current CPI series24. Fuel and light group
remained in deflation since September 2023,
driven down by the softening of global energy
prices (Chart II.3.1). Note: 1. Figures in parentheses indicate weight in CPI-Combined.
2. April and May 2020 data were imputed by the NSO.
II.3.2 Although average headline inflation
moderated in 2023-24, its volatility, measured by
commodity prices. Sub-section 3 presents an
its standard deviation, rose as extreme weather
analysis of inflation dynamics in India, with a
events resulted in intermittent food price spikes
deep dive into its primary constituents in sub-
(Table II.3.1).
section 4. Other indicators of prices and costs are
II.3.3 Against this backdrop, sub-section 2 analysed in sub-section 5, followed by concluding
assesses developments in global inflation and observations.
Table II.3.1: CPI Headline Inflation – Key Summary Statistics

(Per cent)
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
1 2 3 4 5 6 7 8 9 10 11 12
Mean 9.4 5.8 4.9 4.5 3.6 3.4 4.8 6.2 5.5 6.7 5.4
Standard Deviation 1.3 1.5 0.7 1.0 1.2 1.1 1.8 1.1 0.9 0.7 0.9
Skewness -0.2 -0.1 -0.9 0.2 -0.2 0.1 0.5 -0.7 -0.1 -0.1 1.5
Kurtosis -0.5 -1.0 -0.1 -1.6 -1.0 -1.5 -1.4 -0.7 -1.0 -0.6 1.6
Median 9.5 5.5 5.0 4.3 3.4 3.5 4.3 6.5 5.6 6.7 5.1
Maximum 11.5 7.9 5.7 6.1 5.2 4.9 7.6 7.6 7.0 7.8 7.4
Minimum 7.3 3.3 3.7 3.2 1.5 2.0 3.0 4.1 4.2 5.7 4.3
Note: Skewness and Kurtosis are unit-free. Annual inflation is the average of the monthly inflation rates during the year and therefore, may
vary from the annual inflation calculated from the average index for the year.
23
Headline inflation is measured by year-on-year changes in the all-India CPI-Combined (Rural + Urban) [base year: 2012=100] released
by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI), Government of India (GoI).
24
Inflation eased further in April 2024.
29
2. Global Inflation Developments more than offset by subdued global demand and
increase in non-OPEC+ supply. Metal prices
II.3.4 Globally, inflation eased in 2023 from its
declined by around 8 per cent in 2023-24 on
multi-decadal peak in 2022, but it ruled above
weak Chinese and European demand.
targets and pre-pandemic levels across major
International food prices fell by 10 per cent
economies. Aggressive and synchronised
due to improved supplies from robust harvest.
monetary policy tightening, normalisation of
Rice and sugar prices, however, hardened on
supply chains and softening of global energy
supply-demand gaps. The increasing incidence
and food prices helped to rein in inflationary
of extreme climate events and lingering global
pressures. According to the International
geopolitical uncertainties pose risks to the
Monetary Fund (IMF), global inflation fell to
inflation outlook.
6.8 per cent in 2023 from 8.7 per cent in 2022,
although it remained above the average of 3.5 3. Inflation in India
per cent during 2010-19 . 25
II.3.6 India’s headline inflation rose from an
II.3.5 Amongst major commodities, energy intra-year low of 4.3 per cent in May 2023 to a
prices decreased by around 28 per cent during peak of 7.4 per cent in July 2023. It eased to 4.9
2023-24, according to the World Bank energy per cent in October but firmed up to 5.7 per cent
price index (Chart II.3.2). While continuation of in December and then softened to 4.9 per cent in
production cuts by OPEC+ countries exerted March 2024, reflecting the volatility in food prices
upside pressures on crude oil prices, they were (Chart II.3.3). Supply side measures including
Chart II.3.2: International Commodity Prices Chart II.3.3: Movements in Headline Inflation
200 4
8
180
3
160 6
2
140
4
Per cent (y-o-y)

1
Per cent
120
Index: 2010=100
2
100 0
80 0
-1
60
-2 -2
40
20 -3 -4
Jul-20
Nov-20
Mar-21
Jul-21
Nov-21
Mar-22
Jul-22
Nov-22
Mar-23
Jul-23
Nov-23
Mar-24
Apr-20
Nov-14
Nov-16
Nov-18
Nov-20
Nov-22
Mar-14
Mar-16
Mar-18
Mar-20
Mar-22
Mar-24
Jul-15
Jul-17
Jul-19
Jul-21
Jul-23
Apr-13
Base Effect M-o-M Change

Energy Non-energy
Inflation (RHS)
Food Metals and Minerals
Note: April and May 2020 data were imputed by the NSO.
Source: World Bank Pink Sheet Database. Source: NSO and RBI staff estimates.
25
World Economic Outlook (WEO), April 2024, IMF.
30
ECONOMIC REVIEW
targeted interventions, stock limits, and active chains and corrections in input cost pressures.
trade policy initiatives in respect of inflation The impact of shocks on core inflation has been
sensitive agricultural items helped in mitigating reduced significantly in the post-flexible inflation
price pressures. Core inflation was tempered by targeting (FIT) period, indicating the anchoring of
monetary tightening, mending of global supply inflation expectations (Box II.3.1).
Box II.3.1
Dynamics of Inflation Surges in India
Seasonally adjusted quarterly headline and core inflation random error term. J and K are inflation lags and the lags
paths are estimated as a function of lagged inflation and of the event, respectively. K1 and K2 are the beginning and
lagged surge event dummies in a regression-based event the end of the event window.
study framework to study the dynamics of inflation in surge
The average inflation path derived from the estimated
episodes (Blanco et. al., 2022). Surge events are defined
coefficients and from lagged inflation and lagged
by changes in inflation above the threshold level of the 90th
dummies, respectively, is estimated as:
percentile of the long run inflation distribution or those in
the right tail of the distribution (Chart 1). ( ) ( ) ....(2)
The event period window selection is based on the average Cross-country evidence suggests that inflation surges are
time (number of quarters) taken for inflation surges to persistent, but with the duration of disinflation exceeding
reach their pre-surge levels. The dynamics of the inflation the phase of inflation increase (Blanco et.al., 2022; Ari
path is estimated as: et.al., 2023). In India, core inflation takes one year, on an
average, to return to its pre-surge level in the absence
....(1)
of any overlapping shock; however, the convergence of
where is the seasonally adjusted quarterly inflation rate headline inflation to its pre-shock level is obstructed by
(headline or core) in the t th period, is the dummy volatility in food inflation (Charts 2a and 2b). Disaggregated
variable which takes a value 1 at the beginning of the analysis of the pre-FIT (1995-2016) and post-FIT (2017-
inflation surge episode (t) and 0 otherwise and, is the 2023) periods indicates a change in the pattern of
Chart 1: Inflation Distribution (1995 – 2023)

a. Distribution of Headline Inflation Changes b. Distribution of Core Inflation Changes
.40 .90
.35 .80
.30 .70
.60
.25
.50
Density
Density
.20
.40
.15
.30
.10 .20
.05 .10
.00 .00
Quarterly change in inflation (percentage points) Quarterly change in inflation (percentage points)
Note: Red line indicates 90th percentile of the distribution of change in inflation.
(Contd.)
31
Chart 2a: Convergence Path of Headline Inflation Chart 2b: Convergence Path of Core Inflation
Post Surge Post Surge
4
4
3
3
2
2
Per cent
Per cent
1 1
0
0
T=0
T=1
T=2
T=3
T=4
T=5
T=6
T=0
T=1
T=2
T=3
T=4
T=5
T=6
T=7
T=8
-1
-1
Quarters -2 Quarters
Post-FIT Pre-FIT Post-FIT Pre-FIT

Average Inflation Path Average Inflation Path
convergence, particularly for core inflation. While the References:

timeline for movement back to equilibrium remains similar 1. Ari A., C. M-Granados, V Mylonas, L Ratnovski, and
due to structural factors and policy transmission lags, the W Zhao (2023), ‘One Hundred Inflation Shocks: Seven
jump in core inflation is notably lower than in the pre-FIT Stylized Facts’, IMF Working Paper, WP/23/190.
period. This points to anchored inflation expectations.
Thus, credible and timely monetary policy actions can 2. Blanco A., P. Ottonello and T. Ranosova (2022), ‘The
contain the impact of shocks on inflation both in terms of Dynamics of Large Inflation Surges’, NBER Working
size and duration. Paper Series, No. 30555.
II.3.7 Inflation in food and beverages remained agricultural commodities. Frequent shocks in
the major driver of headline inflation, with its vegetables prices, combined with lower stocks
contribution to headline inflation increasing to 60.3 of wheat and decline in production of pulses and
per cent during 2023-24 from 46 per cent a year spices, kept food inflation at an elevated level. The
ago. Uneven spatial and temporal distribution impact of supply shocks on state-level inflation
of rainfall and extreme weather events led to could provide an assessment of their spillovers
crop damages and production shortfalls in key across state borders (Box II.3.2).
Box II.3.2
India’s Spatial Connectivity and Sub-national Inflation Dynamics: Connecting the Dots
Better connectivity among states eases transportation where πit is inflation for state i in year t. The supply shock is
and trade costs by reducing the mark-up. The spatial proxied by state level absolute rainfall deviations from normal26
transmission of supply shocks and impact on CPI food and wij is the row-normalised spatial linkages measured by
inflation is analysed through a heterogeneous spatial auto the number of national highways connecting states i and j
(wii = 0)27. The model is estimated as a system of equations
regression (SAR) model of the following form:
with heterogeneous coefficients (Aquaro et. al., 2021)
πit = ρi ∑jwij πjt + θ1i Shockit+ ϵit ....(A) (Contd.)
26
The absolute rainfall deviations capture the rainfall status relative to the normal rainfall. High deviations indicate a high deficit or excess
rainfall, both of which could be adverse for agriculture production.
27
For a well-connected state i, wij > 0 for majority of j where j ≠ i.
32
ECONOMIC REVIEW
Table 1: Effect of Supply Shock on Spatial Variations in Inflation28
Model  (1) (2) (3) (4)
Full Sample (2013-24) Pre-COVID (2013-19)
1 2 3 4 5
Spatial Autocorrelation 0.715*** 0.725*** 0.701*** 0.710***

(0.072) (0.077) (0.059) (0.059)
Absolute Rainfall Deviation 0.021*** 0.020*** 0.029*** 0.029***

(0.010) (0.010) (0.011) (0.011)
*** indicates significance at 1 per cent level.

Note: Figures in parentheses are standard errors estimated using asymptotic derivation suggested by Aquaro et. al., (2021). The coefficients
represent average effect, average taken over states.
using annual CPI inflation data across 27 states during and significant on food inflation, on an average. Indirect
2013-24. It is observed that there is positive and significant effect accounts for almost 75 per cent of the total effect
spatial autocorrelation among states, suggesting suggesting strong transport linkages among the states
transmission of supply shocks through transport linkages. (Table 2).
Higher rainfall deviations increase inflation pressures on
food inflation (Table 1). Spatio-temporal variations in indirect contributions are
plotted in a heatmap (Chart 1). The contribution of indirect
Using the spatial framework, the total effect of the rainfall
effect29 in total food inflation is high across majority of
shocks is decomposed into direct and indirect effect (Pace
states, underlining the role of road infrastructure in supply
and LeSage, 2009). The direct effect captures the state-
management.
wise effect on inflation due to state-level rainfall deviation,
whereas the indirect effect captures the second-round The findings indicate that supply shocks which generate
effect due to the transmission of rainfall shocks to other food price pressures can get amplified in distant states with
states through the transportation network. The findings poor connectivity. Trade cost pressures are lower for states
suggest that the direct effect of rainfall deviation is positive with better connectivity.
Table 2: Direct and Indirect Effect of Rainfall Shock on Inflation
Model  (1) (2) (3) (4)
Full Sample (2013-24) Pre-COVID (2013-19)
1 2 3 4 5
Direct Effect 0.045*** 0.047*** 0.041*** 0.044***

(0.010) (0.010) (0.012) (0.012)
Indirect Effect 0.128*** 0.131*** 0.121*** 0.122***

(0.024) (0.025) (0.023) (0.023)
Share of Direct Effect in Total Effect (Per cent) 27.01 27.50 25.31 26.51
*** indicates significance at 1 per cent level.

Note: Figures in parentheses are standard errors estimated using bootstrap.
Source: RBI staff estimates. (Contd.)
28
Specifications (2) and (4) use winsorised rainfall deviation values due to high variations in state-level rainfall. Specifications (1) and (3)
use exact rainfall deviations.
29
Contribution is derived as a share of indirect effect to total effect. Lower indirect effect in some years may reflect higher direct impact in
those years.
33
Chart 1: Contribution of Indirect Effect over State and Time Horizon
Himachal Pradesh
Madhya Pradesh
Andhra Pradesh
Uttar Pradesh
Chhattisgarh
Maharashtra
Uttarakhand
West Bengal
Tamil Nadu
Jharkhand
Karnataka
Meghalaya
Rajasthan
Nagaland
Mizoram
Manipur
Haryana
Tripura
Gujarat
Sikkim
Odisha
Punjab
Assam
Kerala
Bihar
Delhi
Year
2013-14 0.61 0.15 0.12 0.31 0.46 0.12 0.40 0.28 0.16 0.46 0.51 0.12 0.26 0.12 0.12 0.17 0.12 0.48 0.51 0.34 0.12 0.68 0.16 0.89 0.12 0.12
2014-15 0.30 0.89 0.90 0.77 0.65 0.55 0.12 0.63 0.47 0.20 0.62 0.47 0.81 0.12 0.12 0.23 0.12 0.73 0.12 0.89 0.53 0.84 0.21 0.34 0.48 0.78
2015-16 0.86 0.83 0.87 0.65 0.51 0.89 0.46 0.49 0.39 0.79 0.40 0.80 0.22 0.57 0.12 0.25 0.12 0.61 0.84 0.69 0.58 0.57 0.89 0.12 0.65 0.77
2016-17 0.62 0.12 0.83 0.72 0.79 0.22 0.87 0.90 0.86 0.71 0.12 0.43 0.51 0.15 0.17 0.84 0.49 0.86 0.15 0.87 0.90 0.64 0.88 0.14 0.50 0.87
2017-18 0.21 0.82 0.18 0.54 0.12 0.12 0.12 0.57 0.12 0.52 0.89 0.12 0.90 0.13 0.19 0.16 0.12 0.37 0.12 0.12 0.75 0.16 0.14 0.15 0.25 0.41
2018-19 0.53 0.52 0.12 0.59 0.85 0.59 0.17 0.78 0.29 0.86 0.13 0.90 0.90 0.24 0.19 0.25 0.16 0.39 0.59 0.14 0.25 0.38 0.54 0.67 0.90 0.89
2019-20 0.56 0.17 0.88 0.67 0.15 0.12 0.45 0.34 0.53 0.14 0.69 0.45 0.84 0.15 0.12 0.37 0.53 0.66 0.31 0.61 0.24 0.72 0.30 0.64 0.50 0.81
2020-21 0.12 0.81 0.28 0.89 0.90 0.12 0.74 0.38 0.12 0.33 0.24 0.24 0.12 0.12 0.44 0.32 0.18 0.90 0.61 0.41 0.12 0.36 0.26 0.55 0.12 0.12
2021-22 0.64 0.15 0.82 0.86 0.86 0.90 0.12 0.89 0.84 0.77 0.18 0.90 0.52 0.31 0.33 0.41 0.21 0.87 0.67 0.36 0.69 0.42 0.66 0.67 0.89 0.36
2022-23 0.62 0.67 0.21 0.12 0.46 0.40 0.85 0.81 0.89 0.90 0.68 0.75 0.19 0.47 0.51 0.46 0.25 0.86 0.42 0.74 0.15 0.88 0.90 0.58 0.87 0.34
2023-24 0.63 0.65 0.25 0.10 0.51 0.51 0.80 0.82 0.87 0.82 0.65 0.72 0.25 0.45 0.55 0.52 0.22 0.81 0.40 0.70 0.21 0.83 0.86 0.61 0.85 0.37
Note: Blue indicates higher contribution of indirect effect, while red indicates lower contribution.
References:
1. Aquaro, M., Natalia B., and Hashem P. M. (2021), ‘Estimation and Inference for Spatial Models with Heterogeneous
Coefficients: An Application to U.S. House Prices’, Journal of Applied Econometrics, 36 (1), 18–44.
2. Armington, P. (1969), ‘A Theory of Demand for Products Distinguished by Place of Production’, International Monetary
Fund Staff Papers, Washington DC, 159–78.
3. Deardorff, A. (2004), ‘Local Comparative Advantage: Trade Costs and The Pattern of Trade’, University of Michigan
Research Seminar in International Economics Discussion Paper, University of Michigan, Ann Arbor.
4. LeSage, J. and Robert. K. P. (2009), ‘Introduction to Spatial Econometrics’, CRC Press, New York, January.
II.3.8 Inflation in the fuel and light group II.3.9 During 2023-24, core inflation moderated
averaged 1.2 per cent during 2023-24, to 4.3 per cent from 6.1 per cent a year ago, as
significantly lower than 10.3 per cent a year a broad-based disinflation gathered momentum
ago. Year-on-year prices in this group moved during September-March. This easing was
into deflation from September 2023, following driven by prices of household goods, clothing
reduction in prices of liquefied petroleum gas and footwear, and personal care and effects
(LPG) and kerosene on the back of correction (excluding gold and silver) on the goods side
in global energy prices. Electricity price inflation, and house rent, recreation and amusement, and
however, averaged higher at 9.7 per cent due to transport fares on the services side. Overall,
tariff hikes in some states. headline inflation fell to 5.4 per cent during
34
ECONOMIC REVIEW
Chart II.3.4: Drivers of Inflation (Y-o-Y) Chart II.3.5: Drivers of Food Inflation (Y-o-Y)
*: Includes meat and fish, egg, and milk and products.

#: Includes fruits, sugar and confectionery, non-alcoholic beverages, and
*: Includes recreation and amusement, and personal care and effects. prepared meals.
Source: NSO and RBI staff estimates. Source: NSO and RBI staff estimates.
2023-24, 129 basis points (bps) lower than a II.3.12 Food and beverages inflation averaged
year ago (Appendix Table 4). 7.0 per cent in 2023-24, higher than 6.7 per
cent a year ago. Within the food group, inflation
4. Constituents of CPI Inflation
increased in six sub-groups while it moderated
II.3.10 During 2023-24, CPI headline for the remaining six sub-groups (Chart II.3.6).
inflation was primarily driven by prices of Pulses and spices (combined weight: 10.6 per
food and beverages, followed by health and
education, housing, and clothing and footwear
Chart II.3.6: Inflation in Major Food Sub-groups
(Chart II.3.4).
Food
II.3.11 Inflation in food and beverages

(weight: 45.9 per cent in CPI) hovered in a wide
range of 3.3 per cent to 10.6 per cent in 2023-
24. Persistent price pressures in cereals, spices,
pulses, and animal proteins exacerbated by
spikes in prices of vegetables, primarily tomato
and onion, were the key drivers of food inflation
(Chart II.3.5). Oils and fats, however, remained
in deflation throughout the year on the back of
softer global edible oil prices.
35
cent in CPI-Food and beverages) recorded II.3.14 Onion prices declined on a month-on-
double digit inflation of 15.2 per cent and 18.9 per month (m-o-m) basis during April-May 2023 on
cent, respectively. Food inflation peaked at 10.6 account of robust market arrivals from the fresh
per cent in July 2023, the highest since January rabi harvest. However, onion prices picked up in
2020. June 2023 and recorded double digit increases
II.3.13 After remaining in deflation during until November due to lower production [a
November 2022-June 2023, the prices of decline of 15.7 per cent in 2023-24, as per 1st
vegetables (weight of 13.2 per cent in the food advance estimates (AE) over 2022-23 final
and beverages group) increased by 37.4 per estimates (FE)]. Seasonal uptick in onion prices
cent (y-o-y) in July 2023 as crop damages and was exacerbated by dry weather conditions in
supply disruptions caused by heavy rainfall August which resulted in crop damage. Delayed
and floods in the northern parts of the country harvest of kharif onions amidst lower availability
led to sharp increase in prices of tomatoes, of rabi stocks exerted upward pressure on
onions and potatoes (TOP) as well as non-TOP prices, leading to y-o-y inflation of 86.3 per cent
vegetables (Charts II.3.7a and II.3.7b). A gradual in November 2023. To contain price pressures,
normalisation of supply conditions and a pick- the central government resorted to multi-pronged
up in fresh crop arrivals softened vegetables measures: enhancement of the buffer stock of
inflation to 2.8 per cent in October 2023. A spike onions to 7 lakh metric tonnes (LMT) in 2023-24
in onion and tomato prices in November 2023 from 2.5 LMT in 2022-23; disposal of stock through
along with subsequent hardening in prices of open market sales; retail sale of subsidised
non-TOP vegetables and adverse base effects onions through various channels; imposition
led to a resurgence in vegetables inflation to 28.3 of 40 per cent export duty and minimum export
per cent in March 2024. price (MEP) of US$ 800 per metric tonne from
Chart II.3.7: Seasonality in CPI-Vegetables Prices and Rainfall Departure
60 80
50
60
40
Departure in per cent
40
30
20
Per cent
20
0
10
-20
0
-40
-10
-20 -60
Jul
Apr
Sep
Dec
Feb
Jun
Jan
Oct
Mar
Nov
May
Aug
-80
Jul
Apr
Sep
Dec
Feb
Jun
Jan
Oct
Mar
Nov
May
Aug
Average (2011-16) Average (2016-22)

2022-23 2023-24 Average (2011-16) Average (2017-22) 2022-23 2023-24
Note: For chart b, rainfall departure is defined as deviation from 50-year average (1971 to 2020); average rainfall data are based on calendar year.
Source: NSO, EnviStats India 2023, Ministry of Statistics and Programme Implementation (MoSPI) and RBI staff estimates.
36
ECONOMIC REVIEW
October 29, 2023; and a prohibition on onion non-TOP vegetables contributed substantially
exports from December 8, 202330. On the back to the spike in vegetables inflation during July-
of these measures and fresh crop arrivals, onion August 2023. With fresh crop arrivals, the prices
prices declined cumulatively by almost 58 per of these vegetables corrected in subsequent
cent during December 2023-February 2024. months, albeit lower than usual due to higher
minimum temperatures in November-December
II.3.15 Tomato prices exhibited significant
2023.
volatility in 2023-24. Inflation in this item surged
to 202.1 per cent in July, the highest in the II.3.16 Inflation in prices of cereals and products
current CPI series, due to crop damages and (weight of 21 per cent in the CPI-Food and
supply disruptions on account of excess rains beverages) remained in double digits during
and floods, especially in northern India, and April-November 2023, driven up by rice and
pest attacks in Karnataka. This was followed by wheat prices. Wheat prices surged on the back
significant corrections during September-October of lower production due to higher temperature in
on fresh crop arrivals. Tomato prices rose again February 2023, unseasonal rains in March 2023
in November 2023 owing to excess/unseasonal and low stock levels. Rice prices have recorded
rainfall in key producing states. Overall, decline in double digit inflation since October 2022 on
supply on account of lower production [(-) 1.3 per account of lower kharif production during 2022-
cent in 2022-23] contributed to price pressures. 23 as well as lower arrivals in 2023-24. In order
Tomato prices corrected in August-October 2023 to improve domestic supply and to contain price
and thereafter in December 2023-January 2024 pressures in cereals, the government undertook
on the back of higher production (1.9 per cent in various measures including allocation of 101.5
2023-24 1st AE over 2022-23 FE). On the other LMT of wheat and 25 LMT of rice for sale under
hand, potato prices remained in deflation from open market sale scheme (OMSS) in the kharif
February 2023 to January 2024 on the back of marketing season 2023-24; imposition of export
higher production (an increase of 7.1 per cent in duty on parboiled rice; restriction on exports of
2022-23). Potato inflation, however, turned non-basmati rice; stock limits on wheat; launch
positive in February 2024 and touched 41 per of retail sale of ‘Bharat’ brand atta and rice at
cent in March 2024 due to lower production subsidised prices to increase supplies in the
in 2023-24 [(-) 1.9 per cent over 2022-23] and market at affordable rates; and restriction on
adverse base effects. Vegetables such as ginger, diversion of subsidised rice to distilleries for
garlic, cauliflower, cabbage, brinjal and green ethanol production. Cereals inflation moderated
chillies also witnessed high price pressures in to 8.4 per cent in March 2024, with wheat/atta
July due to rain-induced supply disruptions. The inflation at 4.7 per cent. Rice inflation, however,
unusually high cumulative price momentum in remained elevated at 12.7 per cent. The
30
On May 4, 2024, the government amended export policy of onion from ‘prohibited’ to ‘free’, subject to MEP of US$ 550 per tonne.
37
Chart II.3.8: CPI-Animal Proteins - Seasonality in Prices
b: CPI-Milk and Products

(Momentum)
1.2
1.0
0.8
Per cent
0.6
0.4
0.2
0.0
-0.2
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Average (2011-18) Average (2018-22) 2022-23 2023-24
Note: For April 2020, index for meat and fish was imputed by the NSO.
government extended the Pradhan Mantri Garib milk fats like butter and ghee. Feed and fodder
Kalyan Anna Yojana (PMGKAY) for five years costs moderated through Q1:2023-24 on better
starting January 2024. domestic availability. Furthermore, as the dairy
sector recovered from the lumpy skin disease
II.3.17 Animal protein-rich items such as eggs,
outbreak of 2022 and production improved, there
meat and fish (weight of 8.8 per cent in CPI-
was a softening in milk price momentum (Chart
food and beverages) witnessed uptick in prices
II.3.8b).
during May-June 2023 due to heat conditions
which impacted egg and poultry production in II.3.18 Prices of oils and fats (weight of 7.8 per
major producing states in southern India (Chart cent in CPI-food and beverages) were in double
II.3.8a). Price pressures moderated subsequently digit deflation throughout 2023-24, averaging
due to fall in demand on account of Shravana at (-) 14.8 per cent, due to higher domestic
period during July-August 2023. However, price production of oilseeds during 2022-23 (by 8.9 per
pressures re-emerged, especially in the case of cent), fall in international prices and lower import
eggs from September 2023, reflecting seasonal duties on major edible oils (Chart II.3.9). The
demand and higher exports. Milk and products lower kharif production of oilseeds in 2023-24 [(-)
price inflation moderated during 2023-24 on 12.7 per cent as per 2023-24 2nd AE over 2022-
favourable base effects, no significant price 23 FE] led to pressure in some oils (viz., mustard
hikes by major milk co-operatives, and reduced and groundnut oil). The government reduced
peak demand for milk and products (such as ice- the basic import duty on refined soyabean and
cream, curd and buttermilk) due to the delayed sunflower oil from 17.5 per cent to 12.5 per cent
onset of summer following unseasonal rains in on June 15, 2023. Lower import duty structure
the early part of 2023 (March-May). Moreover, on crude palm, sunflower and soyabean was
easing global dairy prices discouraged exports, extended till March 2025. Ghee and butter price
thereby enabling higher domestic supply of inflation moderated, reflecting pass-through of
38
ECONOMIC REVIEW
Chart II.3.9: CPI-Oils and Fats Chart II.3.10: Component-wise Contribution in

(Cumulative Momentum) CPI-Pulses Inflation
9.0
6.3
-8.1
Apr-20
Jul-20
Oct-20
-12.3
*: Includes moong, masur, peas, khesari, besan and other pulses products.
Average (2011-16)
Note: 1. Figures in parentheses indicate weight in CPI-pulses and products.
2022-23 2023-24 2. Item level CPI data were not released by the NSO during March-
May 2020.
Source: NSO and RBI staff estimates. Source: NSO and RBI staff estimates.
easing milk price momentum and favourable engaged in sale of subsidised chana dal under
base effect. the brand name ‘Bharat Dal’.
II.3.19 Inflation in prices of pulses (weight of 5.2 II.3.20 Inflation in prices of fruits (weight of 6.3
per cent in CPI-food and beverages) increased per cent in CPI-food and beverages) remained
steadily during the year, averaging 15.2 per cent subdued during April-June 2023, supported by
in 2023-24 (Chart II.3.10). Lower production of higher production (2.5 per cent as per 2022-
pulses in 2022-23 as well as in the kharif 2023-24 23 horticulture FE over 2021-22 FE). However,
season (viz., urad and moong) [(-) 6.6 per cent as there was an uptick in inflation from July 2023
per 2023-24 second advance estimate (SAE) over as floods in Himachal Pradesh damaged apple
2022-23 FE] exerted upward price pressures. plantations and led to supply disruptions. Banana
In order to improve domestic availability and price inflation remained moderate during June-
contain prices, the government extended imports September on the back of robust production but
of tur and urad under the ‘free category’ till March hardened thereafter to 16.6 per cent in December
31, 2025; extended free imports of yellow peas, a 2023 due to supply constraints in the growing
close substitute of gram without minimum import belt as well as higher festival demand. Inflation in
price (MIP) restriction till October 2024; imposed fruits softened from January 2024 on the back of
stock limits on tur and urad till December 31, higher production in 2023-24 (1.7 per cent over
2023; removed procurement ceilings of 40 per 2022-23).
cent for tur, urad and masoor under the price II.3.21 Among other food items, double digit
support scheme (PSS) for 2023-24 to encourage inflation persisted in spices (averaging 18.9
higher sowing acreage; released tur from the per cent during 2023-24), primarily driven by
national buffer in a calibrated manner; and jeera (cumin) - which recorded over 100 per
39
Chart II.3.11: Drivers of Fuel Inflation Chart II.3.12: Movements in LPG Prices
20 140
Contribution in percentage
120
15
100
10 80
points
Per cent (y-o-y)

5 60
40
0
20
-5 0
-10 -20
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
Sep-23
Dec-23
Mar-24
Apr-19
-40
-60
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
Sep-23
Dec-23
Mar-24
Apr-19
Dung Cake (6.5) Electricity (33.0)
Firewood & Chips (30.2) LPG [Excl. Conveyance](18.8)
Kerosene* (8.0) Others** (3.5)
Fuel & Light (y-o-y, per cent) LPG - International LPG - Domestic Non-subsidised
cent inflation during July-December 2023 due to ₹100 per domestic cylinder was announced on
unfavourable weather conditions and stagnant March 8, 2024.
production. The monthly momentum in jeera
Core Inflation (Inflation excluding Food and Fuel)
prices fell sharply in September 2023 and
turned negative from December 2023 onwards, II.3.23 Inflation excluding the volatile food and
fuel items, i.e., core inflation, moderated to 4.3
reflecting higher production in 2023-24 (49
per cent in 2023-24 from 6.1 per cent a year
per cent over 2022-23). Inflation in dry chillies
ago, encompassing softening in both goods and
moderated consistently during the year from 27.5
services inflation (Chart II.3.13).
per cent in April 2023 to 3.7 per cent in March
2024. Chart II.3.13: Drivers of CPI Excluding Food and
Fuel Inflation
8
Fuel
Contribution in percentage points
II.3.22 The contribution of the fuel group 6
5
(weight of 6.8 per cent in CPI) to headline 4
inflation decreased to 1.6 per cent in 2023-24 3
from 10.5 per cent a year ago. Fuel inflation 2
1
decreased from 10.8 per cent in January 2023 to 0
(-) 3.4 per cent in March 2024 driven by the

Dec-20
Dec-21
Dec-22
Dec-23
Sep-20
Mar-21
Sep-21
Mar-22
Sep-22
Mar-23
Sep-23
Mar-24
Apr-20
Jun-20
Jun-21
Jun-22
Jun-23
moderation in kerosene and LPG price inflation Housing Transport and Communication
(Chart II.3.11). The cut in LPG prices by ₹200 Education

Health
Household Goods and Services
Clothing and Footwear
per domestic cylinder on August 30, 2023 Others* Pan, Tobacco and Intoxicants
Excluding Food and Fuel (per cent)
aided the deflation observed since September *: Includes recreation and amusement, and personal care and effects.
Note: April and May 2020 data were imputed by the NSO.
2023 (Chart II.3.12). Another LPG price cut of Source: NSO and RBI staff estimates.
40
ECONOMIC REVIEW
Chart II.3.14: Oil Price Trends Chart II.3.15: Inflation - Core Items
Apr-13
II.3.24 Among the major constituents of core II.3.26 Inflation in personal care and effects
CPI, inflation in clothing and footwear eased, increased marginally to 7.8 per cent in 2023-24
reflecting sharp correction in both domestic from 7.6 per cent a year ago, primarily driven up
and international cotton prices and muted by higher gold prices on the back of international
export demand for textiles and wearing apparel. price movements caused by war-induced safe-
Household goods and services inflation witnessed haven demand.
a gradual easing to 2.7 per cent in March 2024.
5. Other Indicators of Inflation
Reflecting largely unchanged domestic petrol and
diesel prices since August 2022 (Chart II.3.14) II.3.27 From a sectoral perspective, inflation
and moderation in transport fares, inflation in measured by the CPI for industrial workers (CPI-
transport and communication prices ebbed to IW) averaged 5.3 per cent during April-January
1.9 per cent in 2023-24 from 5.9 per cent a 2023-24 as compared with 6.1 per cent in the
year ago. After ruling above 6 per cent during corresponding period a year ago. Inflation based
December 2022-August 2023, inflation in the on the CPI for agricultural labourers (CPI-AL)
health sub-group eased gradually as pandemic- and rural labourers (CPI-RL) averaged higher
induced healthcare services demand subsided at 7.0 per cent and 6.9 per cent, respectively,
and medical supplies normalised. Around 75 per during April-February 2023-24, primarily driven
cent of the core CPI items registered less than by elevated food inflation.
4 per cent inflation in March 2024, indicating a II.3.28 The wholesale price index (WPI) remained
broad based softening (Chart II.3.15). in deflation during April-October 2023-24 before
II.3.25 Housing inflation fell from 4.9 per cent turning marginally positive thereafter, led by
in April 2023 to 2.7 per cent in March 2024. Net sharp increase in vegetables prices, especially
of housing, inflation excluding food and fuel onion and tomato, in November and adverse
averaged 4.4 per cent in 2023-24, significantly base effects in December. The movement in WPI
lower than 6.6 per cent a year ago. inflation during the year mirrored the correction in
41
global commodity prices, particularly in energy, cent for the kharif crops and 2.0-7.1 per cent for
food, and metals, owing to normalisation of the rabi crops. Moong witnessed the maximum
supply and slowdown in global demand. Overall, MSP increase among kharif crops, while the
WPI inflation averaged (-) 0.7 per cent during increase was the highest for lentils (masur) and
2023-24 (as compared with 9.4 per cent a year wheat among rabi crops.
ago), much below average CPI headline inflation
II.3.31 Nominal rural wage growth averaged 6.0
of 5.4 per cent.
per cent in April-February 2023-24 as compared
II.3.29 Low WPI inflation was driven by all the with 5.4 per cent in the corresponding period
three major groups – primary articles (weight of the previous year, with both agricultural and
of 22.6 per cent in WPI basket); fuel and power non-agricultural wage growth near 6 per cent.
(13.2 per cent); and manufactured products The pace of growth, however, has moderated
(64.2 per cent). Primary articles WPI inflation since October, primarily driven by deceleration
moderated to 3.5 per cent during 2023-24, in ploughing, horticulture and packaging within
mainly reflecting deflation in non-food articles the category of agricultural labourers, and beedi
and crude petroleum and natural gas, in line makers and bamboo/cane basket weavers within
with easing global prices even as food inflation the category of non-agricultural labourers.
fluctuated due to uneven and deficient rainfall
6. Conclusion
during the year. In contrast, fuel and power
recorded deflation during 2023-24 averaging II.3.32 In sum, headline CPI inflation moderated
(-) 4.5 per cent (against 28.1 per cent inflation in 2023-24 despite overlapping food price
a year ago) in line with the easing of global shocks. The softening was the outcome of the
energy prices. The broad-based moderation sustained anti-inflationary monetary policy
in global commodity prices kept manufactured stance, proactive supply management measures
products prices in deflation during 2023-24 by the government and correction in global
averaging (-) 1.7 per cent (as against 5.6 per cent commodity prices. Core inflation exhibited a
inflation a year ago). This was largely on account broad-based disinflation since June 2023 and
of manufactured food products, basic metals, moved below 4 per cent by end-2023. While
chemicals and textiles. Reflecting the moderation headline inflation dipped into the tolerance band
in both WPI and CPI inflation, the gross domestic in 2023-24 (barring July-August), it hovered
product (GDP) deflator inflation moderated to above the inflation target. Lingering geopolitical
1.1 per cent in 2023-24 (April-December) from uncertainties, renewed supply chain pressures
8.2 per cent in the corresponding period of due to geopolitical developments in the Middle
2022-23. East, lower reservoir levels, and fall in production
II.3.30 Minimum support prices (MSPs) in 2023- of major crops pose upside risks to headline
24 were increased in the range of 5.3-10.4 per inflation going forward.
42
ECONOMIC REVIEW
II.4 MONEY AND CREDIT Chart II.4.1: Reserve Bank’s Balance Sheet-
Components (Liabilities)
II.4.1 Monetary and credit conditions evolved 100 30
Per cent of balance sheet size

in line with the monetary policy stance during 90
25
Per cent of GDP

80
the year, supporting domestic economic activity. 70
20
Important factors impacting their evolution during 60
69.5
69.1
66.2
65.3
65.3
65.1
64.5
50
62.6
2023-24 were the withdrawal of ₹2000 banknotes
61.8
61.4
59.6
15
40
(May 2023), the merger of a non-bank with a 30 10
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
bank (July 2023) and the temporary imposition
of the incremental cash reserve ratio (I-CRR)31 Reserve Money Reverse Repos/SDF
[August 2023]. The expansion in reserve money Net Non-monetary Liabilities (NNML) Others
Balance Sheet as per cent of GDP (RHS)
and currency in circulation moderated due to the NNML: Net non-monetary liabilities comprise economic capital (such as
capital, reserves, contingency fund, asset development fund, currency
return of a predominant part of ₹2000 banknotes and gold revaluation account, investment revaluation account and foreign
exchange forward contracts valuation account), RBI employee provident
to the banking system as deposits. The return of fund account and IMF quota subscriptions and other payments minus
other assets.
these banknotes, along with an increase in term Source: RBI.
deposit rates, contributed to an acceleration in

aggregate deposits and broad money (M3). Bank liabilities (NNML)] along with surplus liquidity
credit exhibited sustained double digit growth in placed by banks with the Reserve Bank under
2023-24. Banks mobilised additional resources reverse repos/standing deposit facility (SDF)
through certificates of deposit (CDs) to bridge the are the other major components of the balance
credit-deposit gap. sheet.
II.4.2 Against this backdrop, sub-section 2 II.4.4 The Reserve Bank’s balance sheet size
delves into reserve money dynamics and the increased to 24.1 per cent of GDP at end-March
shifts in the Reserve Bank’s balance sheet. 2024 from 23.5 per cent at end-March 2023.
Sub-sections 3 and 4 examine developments The balance sheet has normalised to its pre-
in money supply and bank credit, respectively, pandemic level (Chart II.4.2).
followed by concluding observations.
II.4.5 The growth in RM33 decelerated to 6.7
2. Reserve Money 32 per cent in 2023-24 from 9.7 per cent a year ago
II.4.3 Reserve money (RM) depicts the stock of (7.4 per cent when adjusted for the first-round
monetary liabilities in the central bank’s balance impact of change in CRR34), below its decennial
sheet (Chart II.4.1). Risk buffers and revaluation average35 of 12.9 per cent (2013-14 to 2023-24).
accounts [forming the bulk of net non-monetary This reflected largely the impact of withdrawal of
31
See Chapter III for details on I-CRR.
32
In sub-section 2, growth and other ratios pertain to the last Friday of the respective financial year/quarter/month.
33
Comprises currency in circulation, bankers’ deposits with the Reserve Bank and other deposits with the Reserve Bank, on the liabilities side.
34
CRR was increased from 4.0 per cent to 4.5 per cent in May 2022.
35
Excluding the year of demonetisation 2016-17.
43
Chart II.4.2: Central Bank Balance Sheet Size ₹2000 banknotes36 (Chart II.4.3a and Appendix
(end-December) Table 4). RM growth registered a transient spurt
80 in August 2023 on account of the temporary
imposition of I-CRR during August-October
60 2023 (Chart II.4.3b). The growth in currency in
circulation (CiC) - the major constituent of RM
Per cent of GDP
with a share of 75.1 per cent – decelerated to 4.1

40
per cent during 2023-24 from 7.8 per cent a year
ago, due to the withdrawal of ₹2000 banknotes
20
(Charts II.4.3a and II.4.3c).
II.4.6 The currency-GDP ratio has moderated
0
with the ebbing of pandemic uncertainty and the
2015
2016
2017
2018
2019
2020
2021
2022
2023
increasing usage of digital payments37. India’s
US UK Euro Area India central bank digital currency (CBDC) is gradually
Source: RBI, FRED (St. Louis Fed), BoE, IMF, CEIC, GoI and RBI staff gaining traction in the retail segment (Chart
II.4.4).
estimates.
Chart II.4.3: Reserve Money - Components (Liabilities)
a: Reserve Money - Components (Growth)

50
40
30
20
Per cent
10
0
-10
-20
-30
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
Reserve Money Currency in Circulation
Reserve Money Adjusted for CRR Bankers' Deposits with the RBI
b: RM Y-o-Y Growth: Weekly Trend c: CiC Growth: Financial Year Variation

12
14
12 9
Per cent (y-o-y)
10 6
Per cent
8 3
6
0
4 I-CRR
-3
2 imposition
0 -6
May-10
May-30
Apr-07
Apr-21
May-05
May-19
Jun-02
Jun-16
Jun-30
Jul-14
Jul-28
Aug-11
Aug-25
Sep-08
Sep-22
Oct-06
Oct-20
Nov-03
Nov-17
Dec-01
Dec-15
Dec-29
Jan-12
Jan-26
Feb-09
Feb-23
Mar-08
Mar-22
Mar-31
Mar-05
Mar-25
Jun-19
Nov-06
Nov-26
Jan-05
Jan-25
Aug-18
Sep-07
Sep-27
Dec-16
Apr-20
Feb-14
Oct-17
Jul-09
Jul-29
2022-23 2023-24 2021-22 2022-23 2023-24
Source: RBI.
36
The total value of ₹2000 banknotes in circulation was ₹3.56 lakh crore as on May 19, 2023. As on March 29, 2024, 97.69 per cent of these
banknotes have been returned to the banking system, with a bulk of these in the form of deposits.
37
Details on various modes of digital payments (including CBDC) are covered in Chapters VI, VIII and IX of this Report.
44
ECONOMIC REVIEW
Chart II.4.4: Currency in Circulation and Digital Payments
a: Currency to GDP Ratio (end-December) b: Retail Digital Transactions (end-December)

16 450
14 400
Index (2017 = 100)

12 350
300
Per cent
10
8 250
6 200
150
4
100
2
50
0 0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
US
EU
UK
India
Sweden
US UK Sweden
Euro Area India 2018 2019 2020 2021 2022 2023
c: Retail Digital Payments - India d: CBDC (Retail)$ - India

250 234
(thousand crore)
200
Per cent
Volume
150
103
100
50
12 15
2 6
0 Dec-22
Mar-23
Jun-23
Sep-23
Dec-23
Mar-24
Total Retail Payments CiC/GDP Ratio (RHS)
$: Introduced on December 1, 2022.

Source: RBI, GoI, CEIC, Statista, IMF and RBI staff estimates.
II.4.7 Bankers’ deposits with the Reserve authorised dealers at ₹3.4 lakh crore as against
Bank (22.9 per cent share in RM), i.e., balances net sales of ₹2.2 lakh crore in the previous year.
maintained by banks to meet their CRR NDA declined during the year as the increase
requirements, increased by 15.4 per cent in in government cash balances pulled down the
2023-24, in tandem with the expansion in bank Reserve Bank’s net claims on the government,
deposits, as compared with 15.9 per cent in the more than offsetting the expansion in net credit to
previous year (Chart II.4.3a). banks and the commercial sector (Chart II.4.5).
II.4.8 On the sources side (assets), RM 3. Money Supply 40
comprises net domestic assets (NDA) 38
and net
II.4.9 Money supply in terms of broad money
foreign assets (NFA) 39
of the Reserve Bank.
During 2023-24, the expansion in RM was (M3) consists of currency with the public (CwP)
driven mainly by NFA, with net purchases from and aggregate deposits (AD) of banks on the
38
Comprises net Reserve Bank credit to banks, government and commercial sector (mainly primary dealers).
39
Consists of gold and foreign currency assets (FCA). FCA includes special drawing rights (SDRs) transferred from the Government of India
(GoI). The remaining SDR holdings with the GoI and reserve tranche position (RTP) in the IMF, which represents India’s quota contribution
to the IMF in foreign currency, are not a part of the Reserve Bank’s balance sheet.
40
In sub-sections 3 and 4, growth and other ratios pertain to the last reporting Friday of the respective financial year/quarter/month. Data
exclude the impact of merger of a non-bank with a bank.
45
Chart II.4.5: Reserve Money - Sources (Assets)
a: NDA and NFA - Reserve Bank b: NDA and NFA - Reserve Bank (Variation)
140
10
120
Per cent of RM
100
80 5
60
40
20 0
0
-20 -5
-40
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
NFA NDA NDA NFA NFA Adjusted for Valuation
c: NDA - Reserve Bank (Variation) d: NFA - Reserve Bank (Variation)

5 7
4 6
3 5
2 4
1
0 3
-1 2
-2 1
-3
-4 0
-5 -1
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
RBI's Net Credit to RBI's Net Credit to
Government Banks and Commercial Sector
2018-19 2019-20 2020-21
2021-22 2022-23 2023-24 FCA Gold
Source: RBI.
components side (liabilities). M3 recorded a II.4.10 On the sources side (assets), the
growth of 11.2 per cent as on March 22, 2024 expansion in M3 was mainly driven by bank
(9.0 per cent a year ago) driven mainly by time credit to the commercial sector, which grew by
deposits, which benefitted, inter alia, from higher 15.6 per cent in 2023-24 (14.4 per cent a year
deposit rates with the transmission of policy rate ago). The pace of expansion in net bank credit
increases (Chart II.4.6). The sustained demand to the government decelerated to 5.7 per cent
for bank credit also exerted pressure on banks in 2023-24 from 11.5 per cent a year ago. The
to mobilise more deposits. The expansion in excess holdings of statutory liquidity ratio (SLR)
bank deposits outpaced that in CwP for the securities42 of SCBs were 10.4 per cent of net
second successive year41. The ratio of M3 to GDP demand and time liabilities (NDTL) as on March
has reverted to its pre-pandemic levels (Chart 22, 2024 as compared with 11.0 per cent a year
II.4.7). ago. The net foreign assets of the banking sector
41
Demand deposits remained volatile, largely mirroring the variations in currency with the public.
42
Excess holdings of SLR securities provide collateral buffers to banks for availing funds under the liquidity adjustment facility (LAF) and
are also a component of the liquidity coverage ratio (LCR). The Reserve Bank increased the limit for holding securities under held to maturity
(HTM) category from 22 per cent to 23 per cent of NDTL, effective April 8, 2022. The HTM limits would be restored to 19.5 per cent in a
phased manner by March 31, 2025, starting from the quarter ending June 30, 2024.
46
ECONOMIC REVIEW
Chart II.4.6: Money Supply and SCBs’ Time Deposits
a: Money Supply (M3) Components - Growth b : Time Deposits and Interest Rate
14 7.0
50 25
13 6.5
35 20
6.0
12
Per cent (y-o-y)

15
Per cent
Per cent
20 5.5
Per cent
10 11
5.0
5
5 10
4.5
-10 0 9
4.0
-25 -5 8 3.5
2013-14
2014-15
2015-16
2016-17*
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
7 3.0
1-Jan-21
26-Feb-21
18-Jun-21
3-Dec-21
28-Jan-22
20-May-22
9-Sep-22
4-Nov-22
30-Dec-22
24-Feb-23
16-Jun-23
1-Dec-23
26-Jan-24
23-Apr-21
13-Aug-21
8-Oct-21
25-Mar-22
15-Jul-22
21-Apr-23
11-Aug-23
6-Oct-23
22-Mar-24
Currency with the Public Aggregate Deposits
Money Supply (RHS) Nominal GDP (RHS)
Time Deposit Growth Time Deposit Interest Rate (RHS)
*: March 31, 2017 over April 1, 2016.

Note: Time deposit interest rate refers to weighted average domestic term deposit rates for fresh rupee term deposits of SCBs.
Source: RBI.
increased, mirroring the expansion in NFA in the As on March 22, 2024, the money multiplier (MM)
Reserve Bank’s balance sheet during the year was 5.4, marginally higher than its decennial
(Charts II.4.5 and II.4.8; Table II.4.1). average43 (2013-14 to 2023-24). The currency-
Key Monetary Ratios deposit ratio fell to 15.9 per cent from 17.3 per
II.4.11 The transactions velocity of money, i.e., cent in 2022-23, reflecting the withdrawal of
nominal GDP divided by M3, has remained stable. ₹2000 banknotes and their return to the banking
Chart II.4.7: M3 to GDP Ratio (end-December) Chart II.4.8: Money Supply Sources - Growth
160 25
20
140
15
120
Per cent
10
Per cent
100
5
82.5
80 0
-5
2013-14
2014-15
2015-16
2016-17*
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
60
40
Net Bank Credit to Government
2018
2019
2020
2021
2022
2023
Bank Credit to Commercial Sector

Net Foreign Assets of the Banking Sector
US UK Euro Area India
*: March 31, 2017 over April 1, 2016.
Source: RBI, GoI, IMF, CEIC and RBI staff estimates. Source: RBI.
43
Excluding the year of demonetisation 2016-17.
47
Table II.4.1: Monetary Aggregates

Item Outstanding as on Growth Rate (per cent)
March 22, 2024
2021-22 2022-23 2023-24
(₹ lakh crore)
(as on March 22, 2024)
1 2 3 4 5
I. Reserve Money (RM) 46.8 12.3 9.7 6.7
II. Money Supply (M3) 248.3 8.7 9.0 11.2
III. Major Components of M3
III.1. Currency with the Public 34.2 10.2 7.9 4.3
III.2. Aggregate Deposits 213.3 8.4 9.1 12.3
IV. Major Sources of M3
IV.1. Net Bank Credit to Government 73.1 8.2 11.5 5.7
IV.2. Bank Credit to Commercial Sector 166.7 9.0 14.4 15.6
IV.3. Net Foreign Assets of the Banking Sector 55.1 8.8 -0.6 11.7
V. Money Multiplier (Ratio) 5.4
Note: 1. Data are provisional.
2. The data for RM pertain to March 29, 2024.
Source: RBI.
system as deposits. Adjusted for reverse repo 4. Credit

- analytically akin to banks’ deposits with the II.4.12 Double digit growth in bank credit was
central bank - the money multiplier turned out to sustained during 2023-24, led by demand
from retail and services sectors. SCBs’
be marginally lower at 5.3 as on March 22, 2024,
credit expanded by 16.3 per cent as on March
with MM and adjusted MM converging (Chart
22, 2024 on top of 15.0 per cent a year ago
II.4.9a). The reserve-deposit ratio remained stable (Chart II.4.10a). Bank group-wise, private sector
due to no change in the CRR (Chart II.4.9b). banks (PVBs) continued to exhibit higher growth
Chart II.4.9: Monetary Ratios
a: Money Velocity and Money Multiplier

8 2.5
7
2.0
6 5.4
5 1.5
Ratio
Ratio
1.18
4 1.0
3
0.5
2
1 0.0
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
Money Velocity (RHS) Money Multiplier

Money Multiplier Adjusted for Reverse Repo
48
ECONOMIC REVIEW
Chart II.4.10: Bank Group-wise Credit
a: SCBs' Credit Growth b: Share in Total SCBs' Credit
100
19.2
19.5
90
21.2
24.0
26.8
29.4
33.6
35.0
35.9
37.4
38.4
39.4
80
70
60
Per cent
Per cent
50
75.8
75.6
73.8
40
70.9
68.8
66.4
62.3
60.8
60.0
58.5
57.9
57.2
30
20
10
0
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
Public Sector Banks Foreign Banks Public Sector Banks Foreign Banks
Private Sector Banks SCBs Private Sector Banks
Source: RBI.
than public sector banks (PSBs). PVBs’ growth of bank credit to NBFCs moderated following
accelerated to 19.2 per cent (y-o-y) as on March regulatory measures announced by the Reserve
22, 2024 from 17.8 per cent a year ago and that Bank on November 16, 2023 (see Chapter VI).
of PSBs to 14.7 per cent from 13.8 per cent. This Personal loan growth remained solid at 17.7 per
resulted in a fall in PSBs’ share in total credit, cent in March 2024, supported by housing loans,
although they still have the larger share (Chart which account for about half of the segment
II.4.10b). (Chart II.4.11 and Table II.4.2).
II.4.13 Sector-wise44, credit to agriculture II.4.14 SCBs’ deposit growth remained below
expanded by 20.1 per cent in March 2024 (15.4 that of bank credit during 2023-24 (Charts II.4.12a
per cent a year ago). Credit growth to large and II.4.12b). As a result, the incremental credit-
industries was relatively muted (6.4 per cent), deposit ratio rose above 100 per cent during
partly due to their improved profitability and cash June 2022-May 2023 (Chart II.4.12c). This ratio
flows. The increase in credit to micro, small and fell subsequently on the back of an acceleration
medium enterprises (MSMEs) was robust at 14.1 in deposit growth, but the wedge between
per cent, supported by the availability of collateral- credit and deposit growth has persisted. Banks
free loans45. Services sector bank credit rose by bridged this funding gap through issuances of
20.2 per cent in March 2024, driven by demand CDs which increased to ₹8.3 lakh crore during
from non-banking financial companies (NBFCs) 2023-24 from ₹6.4 lakh crore during the previous
and trade. However, the pace of expansion year (Chart II.4.12d).
44
Non-food credit data are based on fortnightly Section 42 return and covers all SCBs. Sectoral non-food credit data are based on
sector-wise and industry-wise bank credit (SIBC) return, which covers select banks accounting for about 95 per cent of total non-food credit
extended by all SCBs. Data pertain to the last reporting Friday of the month.
45
In Union Budget 2023-24, the government announced the revamping of credit guarantee scheme for micro and small enterprises with
effect from April 1, 2023, with an infusion of ₹9,000 crore to the corpus to enable additional collateral-free guaranteed credit of ₹2 lakh crore
and the reduction in the cost of the credit by about 1 per cent. Besides, the limit on ceiling for guarantees has been enhanced from ₹2 crore
to ₹5 crore.
49
Chart II.4.11: Sector-wise SCBs’ Non-food Credit
a: Non-food Credit Growth b: Share of Major Sectors in SCBs'

Incremental Non-food Credit
30
25
20.2
Per cent (y-o-y)
20 20.1
17.7
15 16.3
10
8.5
5
0
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Jan-23
Mar-23
May-23
Jul-23
Sep-23
Nov-23
Jan-24
Mar-24
Agriculture & Allied Activities Services
Industry (Micro & Small, Medium and Large) Personal Loans
Non-food Credit
Source: RBI.
II.4.15 Tight financial conditions can have an can mitigate the impact of higher interest rates
adverse impact on firms’ debt servicing but on corporate finances (Box II.4.1).
deleveraging and the build-up of liquidity buffers
Table II.4.2: Sectoral Credit Growth - SCBs

(Per cent, y-o-y)
Sector 2022-23# 2023-24

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Non-food Credit 15.4 16.1 15.6 16.3 14.8 15.0 15.3 15.3 16.3 15.8 16.2 16.5 16.3
I. Agriculture & Allied Activities 15.4 16.8 16.1 19.8 16.9 16.6 16.8 17.5 18.2 19.5 20.1 20.1 20.1
II. Industry (Micro & Small, Medium and Large) 5.6 7.0 6.0 8.0 5.1 6.0 6.6 5.4 6.1 8.1 7.9 8.8 8.5
II.1. Micro & Small 13.2 9.9 9.8 13.2 10.2 10.8 10.1 16.5 16.8 14.7 16.0 15.1 14.6
II.2. Medium 12.0 11.2 10.4 13.4 9.1 9.3 9.1 12.0 11.9 8.6 9.9 12.7 13.1
II.3. Large 3.1 5.8 4.6 6.1 3.4 4.5 5.4 2.2 3.0 6.4 5.7 6.8 6.4
II.3.1 Infrastructure 0.4 3.2 1.9 1.7 0.3 1.0 1.9 -0.1 1.1 4.8 5.0 5.8 5.4
II.3.2 Basic Metals & Metal Products 19.6 19.9 17.1 22.0 18.1 18.5 18.6 17.0 17.9 15.0 11.5 11.9 11.4
II.3.3 Chemicals & Chemical Products 10.0 4.9 4.5 6.5 0.2 1.7 2.9 0.4 5.8 9.5 8.9 11.8 11.5
II.3.4 Textiles 1.9 4.3 5.2 8.7 8.4 11.8 12.6 12.7 14.9 13.5 13.6 13.6 10.9
II.3.5 All Engineering 4.3 6.3 5.6 10.5 10.2 9.0 7.4 9.4 9.6 8.5 12.0 11.1 11.2
II.3.6 Food Processing 5.1 2.4 3.7 5.9 4.1 8.0 8.0 10.6 11.4 10.3 13.5 13.7 14.9
III. Services 19.6 21.4 21.1 26.5 19.4 20.6 21.2 19.9 21.7 19.4 20.5 20.9 20.2
III.1. Trade 17.8 18.2 17.4 17.4 16.6 16.0 17.2 19.6 19.6 17.8 18.2 18.1 17.0
III.2. NBFCs 29.9 28.7 27.3 34.7 19.4 20.9 21.4 17.9 18.5 14.7 15.2 14.4 15.0
IV. Personal Loans 21.0 19.7 19.5 21.2 17.9 18.4 18.3 18.0 18.6 17.7 18.4 18.1 17.7
IV.1. Housing 15.2 14.5 14.6 15.0 12.8 13.6 13.7 14.5 15.0 14.4 16.7 16.7 17.4
IV.2. Vehicle Loans 24.8 23.1 22.3 23.0 21.2 20.7 21.3 20.0 20.8 20.5 16.3 17.5 17.3
#: March 2023 over March 2022.

Note: Data are provisional and exclude the impact of merger of a non-bank with a bank.
Source: RBI.
50
ECONOMIC REVIEW
Chart II.4.12: SCBs’ Deposits and Credit
Source: RBI.
Box II.4.1
Monetary Policy and Non-Financial Firms in India
Financial conditions driven by monetary policy cycles and quarter- and firm-fixed effects. Policy rate changes
can impact funding costs, debt servicing capacity and the have a lagged impact on debt servicing indicators and
overall financial health of the non-financial corporate sector the peak impact on the firms occurs 7-9 quarters after the
(Schularick et. al., 2021; Boissay et. al., 2023). Using CMIE policy rate action (Chart 1).
Prowess quarterly data for 1,700 listed Indian non-financial Corporate sector health - captured in indicators such
firms covering the period Q1:2010 to Q4:2023, the impact as debt maturity structure and cash balances - could
of monetary policy changes on average funding costs is potentially amplify or soften the impact of policy rate
analysed in a local linear projection (LLP) model framework actions on debt servicing costs. The Indian corporate
by regressing the interest expense ratio (IER) [gross sector has seen an elongation of the maturity structure
interest expenses to total debt] and interest coverage ratio of its debt along with a build-up of liquidity buffers. This
(ICR) [operating profits to gross interest expenses] on the imparts resilience to firms in the face of tighter financial
policy repo rate, while controlling for GDP growth, inflation, conditions (Chart 2).
(Contd.)
51
Chart 1: Monetary Policy and Debt Serviceability

(Impact of 100 basis points Increase in the Repo Rate)
IRF: Impulse Response Function.

Note: Shaded area represents 95 per cent confidence bands.
Chart 2: Firm-specific Factors Cushioning the Impact of Policy Rate Hikes
a: Term Structure of Debt b: Cash Reserves

70 25 40 14
68 35 12
66 20 30 10
64
Per cent
Per cent
15 25
Per cent
Per cent
62 8
60 20
10 6
58 15
56 10 4
5
54 5 2
52 0
0 0
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
Long Term Debt as per cent of Total Debt Current Assets as per cent of Total Assets
Long Term Debt as per cent of Total Assets (RHS) Cash and Bank Balances as per cent of Current Assets (RHS)
Note: Based on aggregated annual data from 900 listed non-financial firms.
References:
1. Schularick, M., Steege, L. T., and Ward, F. (2021), ‘Leaning Against the Wind and Crisis Risk’, American Economic
Review: Insights, 3 (2), 199-214.
2. Boissay, F., Collard, F., Manea, C., and Shapiro, A. (2023), ‘Monetary Tightening, Inflation Drivers and Financial Stress’,
BIS Working Papers, No.1155, December.
5. Conclusion returns. Robust expansion in bank credit was
II.4.16 The withdrawal of ₹2000 banknotes sustained, led by services, agriculture, retail and
during the year and their return as bank deposits MSME sectors. Upbeat consumer and business
led to a deceleration in currency in circulation optimism and strengthening of banks’ balance
as well as reserve money while simultaneously sheets are expected to sustain credit growth
contributing to an acceleration in deposit growth. necessitating a step-up in deposit mobilisation
Bank deposits were also boosted by attractive efforts to fund credit needs.
52
ECONOMIC REVIEW
II.5 FINANCIAL MARKETS Market segments for government securities

II.5.1 Global financial markets remained volatile (G-secs) and corporate bonds are discussed in
during 2023-24, reflecting uncertainty about the sub-sections 3 and 4, respectively. Equity and
pace of disinflation in major economies, and the foreign exchange market developments are
consequent monetary policy trajectory of major covered in sub-sections 5 and 6, with concluding
central banks as well as intensifying geopolitical observations in sub-section 7.
tensions. Market exuberance on expectations 2. Money Market
that interest rates have peaked remained highly
sensitive to forward guidance and incoming data, II.5.4 Money market rates oscillated around
leading to large two-way movements. the policy corridor during 2023-24 in tune with
evolving liquidity conditions46. The weighted
II.5.2 Domestic financial markets evolved in an
average call rate (WACR) was range bound in the
orderly manner during 2023-24 drawing strength
first half of the year. It hovered close to the ceiling
from resilient economic activity and strengthening
of the liquidity adjustment facility (LAF) corridor
macroeconomic fundamentals. Money market
during October-January on tightening liquidity
rates firmed up in H2:2023-24 as liquidity surplus
conditions resulting from a persistent build-up
ebbed due to a sustained increase in government
in government cash balances and the festival-
cash balances. Issuances of certificates of deposit
related expansion in currency in circulation (CiC)
(CDs) rose amidst tight liquidity conditions and
[see Chapter III]. The WACR eased and moved
sustained credit demand. Sovereign bond yields
around the policy repo rate during February-
remained range-bound during H1:2023-24 but
March. The average spread of the WACR relative
softened thereafter on lower crude oil prices, fall
in global bond yields, announcement of inclusion to the policy rate was (+)13 basis points (bps) in
of Indian sovereign bonds in major global bond 2023-24 as compared with (-)12 bps in 2022-23
indices, easing of domestic inflation and lower- (Chart II.5.1).
than-expected central government borrowing for II.5.5 Volatility in the call money segment,
2024-25. Corporate bond yields generally tracked measured by coefficient of variation47 of the
G-sec yields with a widening in spreads in the WACR, decreased sharply to 2.5 per cent in
later part of the year. Equity markets registered 2023-24 from 18.1 per cent in the previous year.
strong gains on buoyant economic activity and Average daily volume in the money market48
corporate performance. The Indian rupee (INR) declined by 6 per cent to ₹5.04 lakh crore during
displayed stability on the back of improving 2023-24 from ₹5.36 lakh crore in the previous
domestic growth prospects and higher foreign year. Intra-year, average daily volumes initially
portfolio investment (FPI) flows. fell to ₹4.9 lakh crore in Q2:2023-24 from ₹5.0
II.5.3 Against this backdrop, money market lakh crore in Q1, before recovering to ₹5.1 lakh
developments are detailed in sub-section 2. crore in Q3 and further to ₹5.2 lakh crore in Q4
46
Liquidity management operations by the Reserve Bank are covered in Chapter III of this Report.
47
Coefficient of variation is ratio of standard deviation to the mean.
48
Call money, triparty repo and market repo of both overnight and term segments, excluding saturdays.
53
Chart II.5.1: Money Market Rates and Policy Corridor Chart II.5.2: Share of Major Segments in Money
Market Volume
Source: RBI, CCIL, CCIL-Ftrac, FBIL and RBI staff estimates. Source: CCIL and RBI staff estimates.
amidst tightening liquidity conditions49. Of the Q4, the CD issuance was ₹3.0 lakh crore. New
total money market volume, the share of triparty issuance of CPs in the primary market, however,
repo increased from 61 per cent in Q1:2023-24 fell from ₹3.8 lakh crore in Q1 to ₹3.3 lakh crore
to 67 per cent in Q4 with a concomitant fall in the in Q2, and ₹2.9 lakh crore in Q3, amidst tight
share of market repo from 37 per cent to 31 per liquidity conditions and increased appetite for
cent. The share of uncollateralised call money bank loans. However, in Q4, the CP issuance
segment remained at around 2 per cent across increased again to ₹3.8 lakh crore.
quarters (Chart II.5.2).
3. G-sec Market
II.5.6 The average daily spread of certificates of
deposit (CD) and commercial paper (CP) rates over II.5.8 G-sec yields exhibited two-way
T-bill rates picked up during the year (Chart II.5.3). movements in 2023-24. During Q1, yields
Regulatory measures on consumer credit and traded lower in response to the monetary
bank credit to non-banking financial companies policy committee’s (MPC) decision to keep the
(NBFCs) announced by the Reserve Bank on policy repo rate unchanged, favourable inflation
November 16, 2023 also contributed to hardening readings and softening crude oil prices. The 10-
of CP rates for NBFCs during Q3:2023-24. year generic G-sec yield closed the quarter at
II.5.7 In the primary market, fresh issuance of 7.12 per cent, a decline of 19 bps from its level
CDs rose from ₹1.5 lakh crore in Q1:2023-24 and on March 31, 2023 (Chart II.5.4). The yield curve
₹1.6 lakh crore in Q2 to ₹2.6 lakh crore in Q3 flattened, with the spread between 5-year and 10-
as banks sought to fund robust credit offtake. In year rates narrowing to 4 bps from 14 bps as at
49
In the call money segment, average daily volumes (excluding saturdays) decreased from ₹11,274 crore in Q1 to ₹10,381 crore in Q2 before
recovering to ₹11,441 crore in Q3 and ₹11,785 crore in Q4.
54
ECONOMIC REVIEW
Chart II.5.3: Spread of 3-month CP and CD Rate over Chart II.5.4: 10-year Generic G-sec Yield
91-day T-bill Rate
7.5
160
140
140
7.4
120
Basis points
100 7.3
80
7.2
Per cent
60
40
7.1
20
7.06
0 7.0
05-Nov-23
09-Feb-24
27-Apr-23
21-May-23
14-Jun-23
25-Aug-23
18-Sep-23
12-Oct-23
29-Nov-23
23-Dec-23
16-Jan-24
28-Mar-24
03-Apr-23
08-Jul-23
04-Mar-24
01-Aug-23
6.9
Spread of CD Rate Over 91-day T-Bill Rate 6.8
Apr-23
May-23
Jun-23
Jul-23
Aug-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
Spread of 3M CP (NBFC) Rate Over 91-day T-Bill Rate
Spread of 3M CP (Non-NBFC) Rate Over 91-day T-Bill Rate
Source: Bloomberg, FBIL and RBI staff estimates. Source: Bloomberg
end-March 2023. During Q2:2023-24, domestic end tenor vis-à-vis at the long-end. The 5-year
G-sec yields increased in sync with hardening generic G-sec yield closed 10 bps lower at 7.13
global yields, rising crude oil prices and an uptick per cent. Yields softened further during Q4:2023-
in domestic inflation, offsetting optimism from the 24 amid lower-than-expected gross as well as net
inclusion of Indian G-secs in major global bond market borrowings in the Interim Union Budget
indices50. Domestic 10-year and 5-year generic 2024-25 and cooling of domestic inflation. The
G-sec yields closed the quarter higher by 10 bps 10-year and 5-year generic G-sec yields eased
and 15 bps, respectively, over their levels in the by 11 bps and 7 bps, respectively, during the
previous quarter. The domestic G-sec yield curve quarter, with both at 7.06 per cent at end-March
flattened further and the spread between 5-year 2024.
and 10-year G-sec yields inverted marginally to 1
II.5.10 With the introduction of the fully
basis point.
accessible route (FAR)51 with effect from April 1,
II.5.9 During Q3, 10-year generic G-sec yield 2020, FPIs have three channels of investment -
moderated by 5 bps to 7.17 per cent, reflecting the general route with investment limits set under
softening in global yields from their multi-year the medium-term framework (MTF); the voluntary
highs and a fall in Brent crude oil prices despite retention route (VRR); and FAR (Table II.5.1). In
an uptick in domestic inflation. The yield curve aggregate, FPIs invested ₹1.3 lakh crore in debt
steepened, with a sharper fall in yields for short- instruments in 2023-24.
50
The 10-year generic US treasury yield rose by 73 bps, Brent crude oil price increased more than 27 per cent during the period and headline
inflation for July and August breached the upper tolerance band.
51
Under FAR, certain categories of central government securities were opened fully for non-resident investors without any restrictions, apart
from being available to domestic investors as well.
55
Table II.5.1: FPI Investment in Debt Instruments

(Amount in ₹ lakh crore)
Route/ March 31, 2022 March 31, 2023 March 31, 2024
Channel of
Investment Limit Outstanding Utilisation Limit Outstanding Utilisation Limit Outstanding Utilisation
(per cent (per cent (per cent
of Limit) of Limit) of Limit)
1 2 3 4 5 6 7 8 9 10
(i) MTF^ 10.8 2.2 20.5 11.7 1.8 15.4 11.7 1.9 16.0
(ii) VRR^$ 1.5 1.5 100.0 2.5 2.1 82.0 2.5 1.8 70.1
(iii) FAR# 17.6 0.5 2.6 28.0 0.8 2.8 39.0 1.7 4.5
^: Includes central government securities (G-secs), state government securities (SGSs) and corporate bonds.
$: The reduction in utilisation in 2023-24 is due to pooling back of expired limit under VRR with effect from July 2023.
#: Available only for the specified securities included under the route.
Source: CCIL and NSDL.
4. Corporate Debt Market increased between March 2023 and March 2024.
II.5.11 Corporate bond yields generally softened The average daily secondary market turnover in
during 2023-24, mirroring G-sec yields. The the corporate bond market increased marginally
monthly average yield on AAA-rated 3-year to ₹5,718 crore during 2023-24 from ₹5,549 crore
bonds of public sector undertakings (PSUs), in the previous year (Chart II.5.5).
financial institutions (FIs) and banks; NBFCs; and II.5.13 Primary issuances of listed corporate
corporates softened by 12 bps, 14 bps and 12 bonds rose in 2023-24, along with increase
bps, respectively, in March 2024 vis-à-vis March in mobilisation through overseas issuances
2023 levels (Table II.5.2). The yields softened (Table II.5.3). Private placements remained the
during H1 and generally hardened during H2 with preferred channel, accounting for 97.8 per cent
a widening of spreads amid tightening of liquidity of total resources mobilised through the bond
conditions and announcement of regulatory market. Investments by FPIs in corporate bonds
measures towards consumer credit and bank increased marginally during the year, pulling up
credit to NBFCs. the utilisation of the approved limits to 16.2 per
II.5.12 The spread of AAA-rated 3-year bond cent at end-March 2024 from 15.5 per cent a
yields over G-sec yields of corresponding maturity year ago.
Table II.5.2: Corporate Bonds* - Yield and Spread

Yields Spread (bps)
(per cent) [over corresponding risk-free rate]
Entity
March 2023 March 2024 Change (bps) March 2023 March 2024 Change (bps)
1 2 3 4 (=3-2) 5 6 7 (=6-5)
(i) PSUs, FIs and Banks 7.75 7.63 -12 36 44 8

(ii) NBFCs 8.12 7.98 -14 73 80 7
(iii) Corporates 8.07 7.95 -12 68 77 9
*: AAA-rated 3-year bonds.

Note: Yields and spreads are computed as monthly averages.
Source: FIMMDA.
56
ECONOMIC REVIEW
Chart II.5.5: Turnover and AAA-rated 3-Year II.5.15 The markets began Q1:2023-24 on a
Yield Spread in Corporate Bond Market positive note buoyed by solid corporate earnings
12,000 140 for Q4:2022-23, upbeat domestic manufacturing
10,000 120
performance, robust goods and services tax
8,000
100
(GST) collections and soft inflation print for May
Basis points
6,000
80
2023. In Q2, the markets continued the upward
4,000
60
trajectory on positive domestic corporate results
for Q1:2023-24 and favourable macroeconomic
40
2,000
data, notwithstanding some drag from the sharp
20
0 0
correction in China’s equities and rising concerns
8-Jul-23
4-Oct-23
2-Feb-24
1-Sep-23
9-Dec-23
6-Nov-23
5-Jun-23
6-Mar-24
3-May-23
19-Jul-23
30-Jul-23
15-Oct-23
26-Oct-23
13-Feb-24
24-Feb-24
11-Apr-23
22-Apr-23
10-Aug-23
21-Aug-23
12-Sep-23
23-Sep-23
20-Dec-23
31-Dec-23
17-Nov-23
28-Nov-23
11-Jan-24
22-Jan-24
16-Jun-23
27-Jun-23
31-Mar-23
14-May-23
25-May-23
17-Mar-24
28-Mar-24
of a prolonged period of high global interest rates.
Daily Turnover in Corporate Bonds II.5.16 In Q3, the markets initially registered
losses in October 2023 due to FPI outflows and
Spread of NBFCs (RHS)
Spread of PSUs, FIs and Banks (RHS)
Spread of Corporates (RHS) Middle East hostilities. Subsequently, domestic
Source: SEBI and FIMMDA. equity indices rebounded sharply, propelled by
positive global cues from softer-than-anticipated
5. Equity Market inflation prints in the US and favourable domestic
II.5.14 In 2023-24, the Indian equity market corporate earnings for Q2:2023-24. In Q4:2023-
remained ebullient on strong macroeconomic 24, markets registered a marginal increase.
fundamentals and robust corporate profitability. The BSE Sensex crossed the 74,000 mark - a
The BSE Sensex touched a new high, gaining fresh peak - in March 2024 following strong GDP
24.9 per cent to close at 73,651 at end- growth data for Q3:2023-24.
March 2024, outperforming most global peers II.5.17 The broader market indices outperformed
(Chart II.5.6). The exuberance of the secondary the benchmark indices, with BSE MidCap and
market translated into increased resource SmallCap indices increasing by 63.4 per cent
mobilisation in the primary market as well, with and 60.1 per cent, respectively, during 2023-
initial public offer (IPO) issuances maintaining a 24 on increased risk appetite (Chart II.5.7a).
steady pace and resource mobilisation through FPIs made net purchases of ₹2.1 lakh crore in
preferential allotments and qualified institutional the domestic equity market during 2023-24 as
placements (QIPs) also growing at a fast clip. against net sales of ₹0.4 lakh crore in the previous
Table II.5.3: Corporate Bond Issuances

Item Amount (₹ lakh crore) Variation
(Col. 3 over Col. 2)
2022-23 2023-24 [per cent]
1 2 3 4
(i) Primary Corporate Bond Issuances 7.6 8.6 12.2
(ii) Outstanding Corporate Bonds (end-March) 43.1 47.3 9.6
(iii) Investments by FPIs in Corporate Bonds (end-March) 1.04 1.08 4.4
Source: SEBI and NSDL.
57
Chart II.5.6: Equity Market
a. Movement in BSE Sensex and Nifty 50 b. Return on Global Equity Indices during 2023-24
80,000 22,327 23,000
Japan 44.0
22,500
75,000 22,000 US 27.9
21,500
21,000 Brazil 25.7
70,000 73,651 20,500 India 24.9
Index
Index
20,000
65,000 19,500 Germany 18.3
19,000 France 12.1
18,500
60,000 Indonesia
18,000 7.1
17,500
UK 4.2
55,000 17,000
South Africa -3.1
Mar-2023
Apr-2023
May-2023
Jun-2023
Jul-2023
Aug-2023
Sep-2023
Oct-2023
Nov-2023
Dec-2023
Jan-2024
Feb-2024
Mar-2024
China -7.1
-20 -10 0 10 20 30 40 50
BSE Sensex Nifty 50 (RHS) Per cent
Source: BSE, NSE and Bloomberg.
financial year (Chart II.5.7b). Mutual funds made small and medium enterprises (SMEs) segment
net purchases of ₹2.0 lakh crore in 2023-24. exhibited exuberance, with 197 SME IPO/
Primary Market Resource Mobilisation FPO issues garnering ₹6,122 crore in 2023-24,
as compared with 125 SME IPO/FPO issues
II.5.18 In the primary segment of the equity
mobilising ₹2,333 crore a year ago.
market, resource mobilisation through preferential
allotments and QIPs increased to ₹1.1 lakh crore II.5.19 Net resources mobilised by mutual funds
during 2023-24 from ₹0.9 lakh crore during the increased by more than four times to ₹3.5 lakh
previous year. Resource mobilisation through crore during 2023-24 from ₹0.8 lakh crore during
IPOs, follow-on public offers (FPOs) and rights 2022-23. Net mobilisation by open-ended equity-
issues increased to ₹0.8 lakh crore from ₹0.7 lakh oriented mutual fund schemes rose to ₹1.8 lakh
crore (Chart II.5.8a and Appendix Table 5). The crore from ₹1.5 lakh crore. Average monthly
Chart II.5.7: Broader Markets and Institutional Flows
a. Return on BSE Indices b. Net Investment in Equity by Institutional Investors

70 70,000
44,233
63.4 60,000
33,252
60.1 50,000
60
40,000
30,000
50
20,000
10,000
40
Per cent
0
-10,000
30 -20,000
24.9
-30,000
20 -40,000
-50,000
-60,000
10
Nov-23
Dec-23
Mar-24
Jun-23
Aug-23
May-23
Sep-23
Feb-24
Jan-24
Apr-23
Oct-23
Jul-23
0
BSE Sensex BSE MidCap BSE SmallCap Foreign Portfolio Investors Mutual Funds
Source: SEBI, NSDL and Bloomberg.
58
ECONOMIC REVIEW
Chart II.5.8: Resource Mobilisation
1,14,127
83,093
Source: SEBI and AMFI.
contributions to mutual funds through the since September 2022, on expectations of further
systematic investment plan (SIP) route increased monetary tightening by the US Fed and its higher
to ₹16,602 crore in 2023-24 from ₹12,998 crore for longer interest rate stance. FPI outflows in
in the previous year (Chart II.5.8b). Assets under September 2023 added to pressure on the INR
management (AUM) of open-ended equity- while reports of Indian bonds’ inclusion in the JP
oriented mutual funds rose by around 55 per Morgan’s Emerging Market Global Bond Index
cent to ₹23.5 lakh crore at end-March 2024. provided some support. Overall, the INR closed
Net redemptions in open-ended debt-oriented the quarter lower by 1.2 per cent at ₹83.04 per
schemes fell to ₹0.2 lakh crore during 2023-24 US dollar (Chart II.5.9).
from ₹1.8 lakh crore in the previous year.
II.5.21 During Q3:2023-24, the increase in the
6. Foreign Exchange Market US treasury yields to the highest levels since
II.5.20 The Indian rupee (INR) exhibited 2007, and a rise in crude oil prices amid eruption
resilience during 2023-24 on improving domestic of geopolitical tensions in the Middle East and
macroeconomic fundamentals, narrowing current continued FPI outflows weighed on the INR.
account deficit (CAD) and higher capital inflows. Thereafter, softening in US treasury yields and
In Q1, the fall in crude oil prices and large FPI recovery in FPI inflows during November and
inflows imparted an appreciation bias to the INR December (US$ 13 billion) supported the INR. On
while it faced downward pressures from a stronger balance, the INR closed the quarter marginally
US dollar and the impasse around the US debt- lower by 0.2 per cent at ₹83.21 per US dollar. In
ceiling issue. On net, the INR appreciated by 0.2 Q4:2023-24, stronger US dollar and higher crude
per cent in Q1 to ₹82.04 per US dollar by end- oil prices exerted pressure on the INR while FPI
June 2023. In Q2:2023-24, the INR came under inflows of around US$10 billion kept the INR
pressure, tracking sharp gains in the US dollar supported. The INR closed the quarter lower
and crude oil prices. The US dollar index (DXY) by 0.2 per cent at ₹83.40 per US dollar. During
gained 3.2 per cent during the quarter, its best 2023-24, forward premia trended lower, tracking
59
Chart II.5.9: Movement in Rupee, US Dollar, II.6 GOVERNMENT FINANCES

Crude Oil and EM Currency Index
125 1750
II.6.1 The general government finances
120
1740 consolidated during 2023-24 with its deficit
Index (End-March 2023 = 100)
115
1730
(per cent of GDP) declining due to buoyant tax
1720
110
1710
receipts and lower revenue spending. The quality
of expenditure improved with the expansion
Index
105 1700
100
1690
in capital outlays. Against this backdrop, sub-
1680
95
1670
sections 2 and 3 analyse central government
90
1660 finances in 2023-24 and 2024-25, respectively.
85 1650
Sub-sections 4 and 5 focus on state government
Mar-23
Apr-23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
finances during these years. General government

USD/INR US Dollar Index
finances are discussed in sub-section 6. The final
Brent Crude Oil Price MSCI EM Currency Index (RHS) section sets out concluding remarks.
Source: Bloomberg.
2. Central Government Finances in 2023-24

narrowing of the interest rate differential between
India and the US. II.6.2 The Union government contained its gross
fiscal deficit (GFD) for 2023-24 at 5.9 per cent of
II.5.22 The 40-currency nominal effective
GDP in the revised estimates (RE)52, in line with
exchange rate (NEER) depreciated (y-o-y) by
0.6 per cent, while real effective exchange rate the budget estimates (Chart II.6.1).
(REER) appreciated (y-o-y) by 0.9 per cent
Chart II.6.1: Contribution to Fiscal Consolidation in
during 2023-24. 2023-24 RE vis-à-vis BE
0.50
7. Conclusion 0.40
Per cent of GDP
II.5.23 Indian financial markets displayed orderly

0.30 0.25
0.20 0.17
movements during 2023-24, notwithstanding 0.10
persisting adverse global spillovers from 0.00
tightening global financial conditions, the -0.10 -0.02

-0.10 -0.13
uncertain trajectory of monetary policy of major -0.20 -0.16
Revenue
Revenue
Capital Receipts
Revenue
Expenditure
Capital
Expenditure
Due to
Revision in GDP
Non-debt
Net Tax
Non-tax
systemic economies, volatile crude oil prices and

lingering geopolitical tensions. Money market
rates witnessed reduced volatility. Domestic G-sec
yields were marked by two-way movements. The
BE: Budget Estimates. RE: Revised Estimates.
Note: Negative contribution denotes decline in receipts or increase in
INR exhibited stability. The Indian equity market

expenditure or a downward revision in GDP from BE to RE as these
contribute to slippage from the budgeted fiscal deficit target. Conversely,
scaled new peaks and resource mobilisation in

positive contribution denotes higher receipts or lower expenditure from BE
to RE, as these contribute to attainment of budgeted fiscal deficit target.
the primary markets gained momentum.

Source: Union Budget documents and RBI staff estimates.
52
The second advance estimates of nominal GDP for 2023-24 (released by National Statistical Office on February 29, 2024) are placed at
₹293.9 lakh crore as against the earlier estimate of ₹296.6 lakh crore (used in the interim Budget 2024-25). Accordingly, the gross fiscal deficit
for 2023-24 (RE) stands at 5.90 per cent of GDP, as against the RE of 5.85 per cent given in the interim Union Budget 2024-25.
60
ECONOMIC REVIEW
II.6.3 Revenue expenditure turned out to be Chart II.6.2: Disinvestment - Actual vis-à-vis Budgeted
higher than budgeted by 0.1 per cent of GDP 250
(₹38,103 crore) in 2023-24 (RE), reflecting

additional spending measures such as the subsidy 200
of ₹200 per 14.2 kg LPG cylinder (announced in

August 2023); additional subsidy of ₹100 per 150
cylinder for beneficiaries of the Pradhan Mantri

100
Ujjwala Yojana (PMUY) scheme (announced in
October 2023); extension of the Pradhan Mantri 50
Garib Kalyan Anna Yojana (PMGKAY) for five
years; increased allocation of funds under the 0
Mahatma Gandhi National Rural Employment
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
Guarantee Act (MGNREGA) scheme; and higher
outgoes under nutrient based fertiliser subsidy Budgeted Receipts Realisation of Proceeds
(NBS). Capital expenditure, on the other hand, Source: Union Budget documents.
fell short of the budget estimates (BE) by ₹50,715 3. Central Government Finances in 2024-25
crore due to lower than budgeted loans and
II.6.5 The interim Union Budget 2024-25
advances (₹20,640 crore) and capital outlay53
(₹30,075 crore). Nevertheless, capex grew at a underscored the government’s commitment
robust pace of 28.4 per cent in 2023-24 (RE) and to fiscal consolidation while supporting growth
rose to 3.2 per cent of GDP from 2.7 per cent in impulses through higher capital expenditure.
2022-23. The GFD has been budgeted at 5.1 per cent of
GDP for 2024-25, a consolidation of 76 basis
II.6.4 On the receipts side, gross tax revenues
points (bps) over the RE for 2023-24, led by
surpassed BE by ₹76,353 crore, driven up by
the containment of revenue expenditure at 11.2
higher income tax revenues which offset shortfalls
per cent of GDP, even as capital expenditure
in excise and customs collections. Income tax
is budgeted to rise to 3.4 per cent of GDP from
recorded a buoyancy of 2.5 in 2023-24 (RE) vis-
3.2 per cent in 2023-24 (RE) [Table II.6.1 and
à-vis 1.0 in BE. Net tax revenue, however, fell
Appendix Table 6].
short of the BE by 0.02 per cent of GDP (₹6,713
crore) due to higher devolution to states. Non- II.6.6 On the expenditure front, payouts on
tax revenue collections exceeded BE by 0.3 per major subsidies are expected to contract by 7.8
cent of GDP (₹74,145 crore) on the back of higher per cent in 2024-25 (BE), restricting revenue
dividend transfers by the Reserve Bank and spending growth to 3.2 per cent. Capital
public sector enterprises. Disinvestment receipts expenditure is expected to remain robust in
at ₹30,000 crore in 2023-24 (RE) were, however, 2024-25 (growth of 16.9 per cent), driven by
below the BE (Chart II.6.2). spending on roads and railways (Chart II.6.3).
53
Capital expenditure less loans and advances.
61
Table II.6.1: Central Government’s Fiscal Performance

(Per cent of GDP)
Item Average of 2019-20 2020-21 2021-22 2022-23 2023-24 2023-24 2024-25

2015-16 to (BE) (RE) (BE)
2018-19
1 2 3 4 5 6 7 8 9
I. Non-debt Receipts 9.1 8.7 8.5 9.4 9.1 9.0 9.4 9.4
II. Gross Tax Revenue (a+b) 11.0 10.0 10.2 11.5 11.3 11.1 11.7 11.7
a) Direct Tax 5.7 5.2 4.8 6.0 6.2 6.0 6.6 6.7
b) Indirect Tax 5.3 4.8 5.5 5.5 5.2 5.1 5.1 5.0
III. Net Tax Revenue 7.1 6.7 7.2 7.6 7.8 7.7 7.9 7.9
IV. Non-tax Revenue 1.5 1.6 1.0 1.5 1.1 1.0 1.3 1.2
V. Non-debt Capital Receipts 0.5 0.3 0.3 0.2 0.3 0.3 0.2 0.2
VI. Total Expenditure 12.6 13.4 17.7 16.1 15.6 14.9 15.3 14.5
VII. Revenue Expenditure 10.9 11.7 15.5 13.6 12.8 11.6 12.0 11.2
VIII. Capital Expenditure 1.7 1.7 2.1 2.5 2.7 3.3 3.2 3.4
IX. Revenue Deficit 2.4 3.3 7.3 4.4 4.0 2.9 2.9 2.0
X. Gross Fiscal Deficit 3.5 4.6 9.2 6.7 6.4 5.9 5.9 5.1
BE: Budget Estimates. RE: Revised Estimates.

Source: Union Budget documents.
The scheme for providing financial assistance to II.6.7 On the receipts side, gross tax revenue
states for capital investment has been extended is budgeted to increase by 11.5 per cent, a
to 2024-25. Capital outlay is budgeted to rise buoyancy of 1.09 in line with recent trends (Table
to 2.9 per cent of GDP in 2024-25 (BE) and II.6.2). The direct tax-GDP ratio is projected at
the revenue expenditure/capital outlay ratio will 6.7 per cent of GDP in 2024-25, the highest in
fall further, improving the quality of spending three decades (Chart II.6.5). Non-tax receipts are
(Chart II.6.4). budgeted to increase by 6.4 per cent, while the
Chart II.6.3: Ministry-wise Breakdown of Capital Chart II.6.4: Quality of Expenditure

Expenditure in 2024-25 (Per cent of Total)
14 90
2.6 80
12
6.2 70
10
16.4 60
38.8
7.7
8
Per cent
50
Ratio
6 40
3.9 30
4
19.9 20
24.5
2
10
0 0
2002-03
2004-05
2006-07
2008-09
2010-11
2012-13
2014-15
2016-17
2018-19
2020-21
2022-23
2024-25 (BE)
22.7
Revenue Expenditure-Capital Outlay

Defence Roads Railways Finance
Communications Housing Others Revenue Deficit-Gross Fiscal Deficit (RHS)
Source: Union Budget documents. Source: Union Budget documents.
62
ECONOMIC REVIEW
Table II.6.2: Tax Buoyancy II.6.8 Gross market borrowings for 2024-25 are
Average 2023-24 2023-24 2024-25 pegged at ₹14.1 lakh crore (4.3 per cent of GDP),
Tax (BE) (RE) (BE) down from ₹15.4 lakh crore in 2023-24 (RE)
Buoyancy
(2010-11 to [5.3 per cent of GDP]. Net market borrowings
2018-19) remain the main source of financing GFD in 2024-
1 2 3 4 5 25 (BE)54, followed by small savings (Chart II.6.6).
1. Gross Tax 1.11 0.99 1.39 1.09
Revenue 4. State Finances in 2023-24
2. Direct Taxes 1.03 1.00 1.90 1.24
II.6.9 States budgeted a combined GFD of 3.1
i) Corporation 0.92 1.00 1.30 1.24
Tax per cent of GDP in 2023-24 within the Centre’s
ii) Income Tax 1.27 1.00 2.49 1.25 limit of 3.5 per cent for the year (Table II.6.3).
3. Indirect Taxes 1.25 0.99 0.77 0.89 According to the data for 22 states available
i) GST - 1.14 1.40 1.11
ii) Customs Duty 0.31 1.05 0.27 0.55
from Comptroller and Auditor General (CAG)
iii) Excise Duty 0.91 0.57 -0.50 0.48 of India for 2023-24, states’ GFD at 92.0 per
-: Not available. GST: Goods and Services Tax. cent of the budget estimates was higher than
Note: Tax buoyancy is defined as the responsiveness of tax the previous year (88.1 per cent). On the
revenue to changes in nominal GDP and to discretionary changes
in tax policies. receipts front, states’ overall tax revenue increased
Source: RBI staff estimates based on Union Budget documents by 14.7 per cent due to higher devolution, while
for various years.
own tax revenue growth decelerated. Within
states’ own tax revenue, growth in sales tax/value
disinvestment target has been set at ₹0.5 lakh
added tax and state excise moderated, while
crore.
growth in state goods and services tax increased
Chart II.6.5: Tax-GDP Ratio Chart II.6.6: Sources of Financing Gross Fiscal Deficit
14 120
11.7
12 100
17.4
27.7
26.6
27.2
10 80 22.8
19.2
Per cent of GDP
25.7
Per cent of GFD
34.8
8
60
6.7
6
76.3
5.0 40
69.7
68.0
65.1
63.8
56.8
50.8
4
44.4
20
2
0
0
-20
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
(RE)
2024-25
(BE)
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2024-25 (BE)
2023-24 (RE)
External Assistance Securities against Small Savings

Gross Tax Revenue Direct Tax Net Treasury Bills Net Market Borrowings
Indirect Tax Others
Source: Union Budget documents. Source: Union Budget documents.
54
Net market borrowings for 2024-25 (BE) are placed at ₹11.75 lakh crore (3.6 per cent of GDP) as compared with ₹11.80 lakh crore in
2023-24 (RE) [4.0 per cent of GDP].
63
Table II.6.3: Fiscal Position of States/UTs

(Amount in ₹ lakh crore)
2019-20 2020-21 2021-22 2022-23 (RE) 2023-24 (BE)

1 2 3 4 5 6
I. Revenue Receipts 26.7 25.9 32.3 39.1 43.1
(13.3) (13.0) (13.7) (14.4) (14.3)
II. Non-debt Capital Receipts 0.6 0.2 0.2 0.1 0.4
(0.3) (0.1) (0.1) (0.1) (0.1)
III. Revenue Expenditure 27.9 29.6 33.3 40.4 43.4
(13.9) (14.9) (14.2) (14.8) (14.4)
IV. Capital Expenditure 4.6 4.6 5.8 8.1 9.6
(2.3) (2.3) (2.4) (3.0) (3.2)
a. Capital Outlay 4.2 4.1 5.3 7.3 8.7
(2.1) (2.1) (2.3) (2.7) (2.9)
b. Loans and Advances by States 0.4 0.4 0.4 0.8 0.9
(0.2) (0.2) (0.2) (0.3) (0.3)
V. Fiscal Deficit 5.3 8.1 6.6 9.2 9.5
(2.6) (4.1) (2.8) (3.4) (3.1)
VI. Revenue Deficit 1.2 3.7 1.0 1.3 0.4
(0.6) (1.9) (0.4) (0.5) (0.1)
VII. Primary Deficit 1.7 4.2 2.3 4.5 4.3
(0.9) (2.1) (1.0) (1.7) (1.4)
Note: Figures in parentheses are per cent of GDP.

Source: Budget documents of state governments.
marginally. Non-tax revenues expanded by 16.8 50-year interest free loans for capital expenditure to
per cent, while grants from the Centre contracted states would be continued in 2024-25, with total
by 21.7 per cent following the cessation of GST outlay of ₹1.3 lakh crore - an increase of 23.2
compensation to states and the tapering off of per cent over 2023-24 (RE) levels. Finance
finance commission grants. commission grants are, however, expected to
decline in 2024-25, primarily due to lower transfers
II.6.10 On the spending front, revenue expenditure
under post-devolution revenue deficit grants.
growth (8.1 per cent) was lower in 2023-24 than the
previous year (11.2 per cent). The thrust on capital
spending continued (19.4 per cent increase), Table II.6.4: State Government Finances
aided by the Centre’s scheme for special 2024-25*: Key Deficit Indicators
(Per cent of GSDP)
assistance to states for capital investment.
Item 2022-23 2023-24 (RE) 2024-25 (BE)
5. State Finances in 2024-25 1 2 3 4
II.6.11 As per information available for 27 states Revenue Deficit 0.3 0.5 0.2
for 2024-25, their consolidated GFD-GSDP ratio Gross Fiscal Deficit 2.7 3.3 3.0
is budgeted at 3.0 per cent (Table II.6.4). Gross 1.3
Primary Deficit 1.0 1.6
transfers from the Centre are budgeted to increase
*: Data pertain to 27 states/UTs, out of which 19 states/UTs have
by 8.4 per cent during 2024-25 (BE), largely due presented their final budgets and remaining states have presented
to enhanced tax devolution and an increase in Vote on Account budgets for 2024-25.
Source: Budget documents of state governments.
loans for capital expenditure. The scheme of
64
ECONOMIC REVIEW
6. General Government Finances Chart II.6.7: General Government Debt and Deficit
Indicators
II.6.12 The general government deficit and debt
100 14
moderated to 8.6 per cent and 81.6 per cent of 90
89.3
84.3 82.5 81.6 12
GDP, respectively, in 2023-24 (BE) from 9.6 per 80 75.2
69.6 70.5 13.1
cent and 82.5 per cent, respectively, in 2022-23
68.8 10
70
Per cent of GDP
Per cent of GDP

9.6
(RE), respectively (Chart II.6.7 and Appendix 60 9.5
8.6 8
Table 7). The reduction in the general government

50
6.9 7.2
6
40
deficit in 2023-24 was supported by an increase in 30
5.8 5.8
4
tax revenues [from 17.9 per cent of GDP in 2022- 20
23 (RE) to 18.2 per cent in 2023-24 (BE)] along 10
2
with moderation in revenue expenditure (from 0 0
25.8 per cent of GDP to 24.0 per cent).
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
(RE)
2023-24
(BE)
II.6.13 Globally, government finances remained
under pressures in 2023 on the back of slowing
Internal Debt External Debt
GFD (RHS)
growth, rising real interest rates and expansionary Source: RBI and Union Budget documents.
fiscal policy (IMF, 2023)55. The general government
fiscal deficit increased from 3.2 per cent of GDP economies (AEs) and from 4.9 per cent to 5.4 per
in 2022 to 5.6 per cent in 2023 in advanced cent in emerging market economies (EMEs) [Chart
Chart II.6.8: Fiscal Balance and Gross Debt
a. Fiscal Balance: AEs b. Fiscal Balance: EMEs

0 4
2
Per cent of GDP
Per cent of GDP
-2
0
-4 -2
-6 -4
-6
-8
-8
-10 -10
AEs
US
Japan
France
EU
EMEs
Brazil
Mexico
Türkiye
UK
Korea
Australia
Canada
India
China
South Africa
Argentina
Russia
Indonesia
Saudi Arabia
Italy
Germany
2022 2023 2024 2028 2022 2023 2024 2028
c. Debt: AEs d. Debt: EMEs

300 180
160
Per cent of GDP
Per cent of GDP
250
140
200 120
150 100
80
100 60
40
50 20
0 0
AEs
Japan
US
France
EU
EMEs
Mexico
Türkiye
Brazil
UK
China
India
Indonesia
Russia
Canada
Korea
Australia
Argentina
South Africa
Saudi Arabia
Italy
Germany
2022 2023 2024 2028 2022 2023 2024 2028

US: United States of America. UK: United Kingdom. EU: European Union.
Note: Data for India have been sourced from the World Economic Outlook (WEO), IMF to ensure comparability with other countries. However, this may be at
variance with data reported in Union Budget documents or the Reserve Bank publications as the IMF follows different accounting practices and conventions than
those followed by the Government of India.
Source: World Economic Outlook, April 2024, IMF.
55
IMF Fiscal Monitor, October 2023.
65
II.6.8]. Even as overall deficits are projected to subdued external demand led to a contraction in
narrow in 2024, global debt/GDP ratios will remain merchandise exports and imports (US$ terms)
elevated and are expected to increase further in and a narrowing of the merchandise trade deficit.
both AEs and EMEs. The buoyancy in services exports and private
transfer receipts cushioned the current account
7. Conclusion deficit (CAD). Net capital flows were higher than
II.6.14 The interim Union Budget 2024-25 in the previous year, driven by portfolio inflows
persevered with consolidation, while improving the and banking capital, leading to an accretion to
quality of spending through higher capital outlays. foreign exchange reserves.
Gross market borrowings are placed lower in II.7.2 Against this backdrop, sub-section 2
2024-25, which would enhance the resources presents a brief overview of global economic
available for the private sector. State government and financial conditions, followed by an analysis
budgets for 2024-25 also envisage containment of India’s merchandise exports and imports in
of fiscal deficits. Accordingly, the general sub-section 3. The behaviour of invisibles is
government deficit is expected to decline further presented in sub-section 4. Details on net capital
flows are set out in sub-section 5, while external
in 2024-25, which bodes well for macroeconomic
vulnerability indicators are examined in sub-
stability.
section 6, followed by concluding observations.
II.7 EXTERNAL SECTOR 2. Global Economic Conditions
II.7.1 India’s external sector strengthened II.7.3 The global economy sustained an
during 2023-24 amidst multiple global headwinds uneven expansion during 2023, despite tight
financial conditions, high inflation, geoeconomic
emanating from sharp deceleration in world trade
fragmentation and geopolitical tensions. GDP
volumes, financial market volatility engendered by
growth turned out to be somewhat stronger than
aggressive monetary policy tightening actions of anticipated, driven by resilience in the US and
systemic central banks and escalating geopolitical several large emerging market and developing
tensions. The correction in commodity prices and economies (EMDEs) [Chart II.7.1a]. Global trade
Chart II.7.1: Real GDP and World Trade* Volume Growth
a: Global GDP Growth Forecasts (IMF) [Successive Revisions] b: Global Trade Growth Forecasts (IMF) [Successive Revisions]
8
6.3
6
3.8
3.8
3.6
3.6
3.5
3.2
3.2
3.1
3.1
3.1
3.0
3.0
3.0
3.0
2.9
2.9
2.9
4
2.8
2.8
2.7
Per cent
-2
2020 -2.8
-4
2017
2018
2019
2021
2022
2023
Jan-22
Apr-22
Jul-22
Oct-22
Jan-23
Apr-23
Jul-23
Oct-23
Jan-24
Jan-23
Apr-23
Jul-23
Oct-23
Jan-24
Apr-24
Actuals/Estimates Forecasts for Forecasts for

2023 2024
Average Growth (2000-2019)
*: Goods and services.

Source: IMF.
66
ECONOMIC REVIEW
Chart II.7.2: Portfolio Investment Flows to EMEs Chart II.7.3: Change in Global Foreign Exchange
Reserves*
100 800
80 600
60 400
40
US$ billion
200
US$ billion
20
0
0
-200
-20
-400
-40
-600
-60
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Jan-23
Mar-23
May-23
Jul-23
Sep-23
Nov-23
Jan-24
Mar-24
-800
Q1:2016
Q2:2016
Q3:2016
Q4:2016
Q1:2017
Q2:2017
Q3:2017
Q4:2017
Q1:2018
Q2:2018
Q3:2018
Q4:2018
Q1:2019
Q2:2019
Q3:2019
Q4:2019
Q1:2020
Q2:2020
Q3:2020
Q4:2020
Q1:2021
Q2:2021
Q3:2021
Q4:2021
Q1:2022
Q2:2022
Q3:2022
Q4:2022
Q1:2023
Q2:2023
Q3:2023
Q4:2023
Debt Equity Total
*: Quarter-on-quarter change in official reserve assets.
Source: Institute of International Finance. Source: IMF.
volume growth was restrained by the rising trade Table II.7.1: India’s Merchandise Trade
barriers, rotation of global demand back to less- Value in US$ billion Growth Rate
trade intensive services from goods with the
2020- 2021- 2022- 2023- 2020- 2021- 2022- 2023-
ebbing of the pandemic, subdued investment 21 22 23 24 21 22 23 24
demand and the strengthening of the US dollar 1 2 3 4 5 6 7 8 9
(Chart II.7.1b). With continued progress on Exports
disinflation, markets are expecting a turn in the Q1 51.5 95.5 121.0 103.9 -36.4 85.7 26.6 -14.1
global monetary cycle in 2024, which is buoying Q2 74.2 102.7 110.7 107.2 -5.2 38.5 7.8 -3.2
Q3 75.8 106.8 104.6 105.6 -4.2 41.0 -2.1 1.0
sentiments in financial markets.
Q4 90.4 117.0 114.8 120.4 20.4 29.3 -1.9 4.9
II.7.4 Portfolio flows to emerging market Annual 291.8 422.0 451.1 437.1 -6.9 44.6 6.9 -3.1
economies (EMEs) recovered in 2023 amidst Imports
heightened volatility (Chart II.7.2). Global foreign Q1 61.3 127.0 183.5 160.1 -52.9 107.2 44.5 -12.8
exchange reserves increased during 2023, Q2 90.7 147.5 189.0 170.3 -23.1 62.7 28.1 -9.9
Q3 110.8 167.0 176.1 174.4 -4.6 50.7 5.4 -1.0
reflecting the higher price of gold during the year
Q4 131.7 171.6 167.3 170.7 19.1 30.3 -2.5 2.0
and lower bond yields in Q4:2023 (Chart II.7.3).
Annual 394.4 613.1 716.0 675.4 -16.9 55.4 16.8 -5.7
3. Merchandise Trade Trade Balance
Q1 -9.8 -31.4 -62.6 -56.2

II.7.5 In India, merchandise exports as well as
Q2 -16.5 -44.8 -78.3 -63.1
imports (US$ terms) declined during 2023-24
Q3 -35.1 -60.2 -71.5 -68.8
(Table II.7.1). With the fall in imports exceeding Q4 -41.2 -54.6 -52.6 -50.3
that in exports, the merchandise trade deficit Annual -102.6 -191.0 -264.9 -238.3
narrowed in 2023-24, reflecting the fragility of Note: Quarterly figures may not add up to annual figures.
Source: DGCI&S.
global demand (Box II.7.1).
67
Box II.7.1
Exports Downturn: Structural or Cyclical?
India’s merchandise exports rose around ten-fold from Table 1: Estimated Elasticity of India’s Merchandise
US$ 45 billion in 2000-01 to US$ 437.1 billion in 2023-24, Exports
interspersed by episodes of contraction and surges. An Dependent Variable: Log (Export Volume Index)
autoregressive distributed lag (ARDL) model for the period Explanatory Variable Coefficient
Q1:2009 to Q3:2023 indicates that the long-run elasticity of
1 2
India’s merchandise export volumes with respect to world
Short-Run (Error Correction Results)
merchandise trade volumes is around 1.4. Exports are also
sensitive to relative prices, with the real effective exchange -0.173**
D[Log⁡(India's export volume index)t –1]
(0.076)
rate (REER) elasticity at around (-) 0.5 (Table 1).
0.123*
The short-run trade elasticity is above its long-run value, (0.064)
which suggests that global demand fluctuations have a 0.272***
(0.061)
stronger impact on India’s exports in the short-run. The
2.132***
speed of adjustment (ECM term) is high, i.e., export growth D[Log⁡(World trade volume index)t ]
(0.155)
tends to revert to its equilibrium path quickly following
-0.567***
deviations from the trend. Utilising the above results, India’s Error Correctiont-1
(0.099)
merchandise export growth is decomposed into structural Long-Run (Cointegrating Relation)
and cyclical components (Constantinescu et. al., 2020). The
1.263
analysis suggests that the cyclical component has been the Constant
(0.933)
major driver of contraction in merchandise export volumes 1.369***
Log⁡ (World trade volume index)
in recent quarters (Chart 1). (0.106)
-0.544**
Log⁡ (Export weighted REER)
Chart 1: Decomposition of India’s Export Volume Growth (0.265)
Bound Test, F-statistic 7.779
Breusch-Godfrey LM Test, p-value 0.339
Breusch-Pagan-Godfrey Test, p-value 0.455
Per cent (y-o-y)
Adjusted R-squared 0.818
***, ** and * indicate significance level at 1 per cent, 5 per cent and
10 per cent, respectively.
Note: Figures in parentheses are standard errors.
Reference:
Constantinescu, C., Mattoo, A., and Ruta, M. (2020), ‘The
Global Trade Slowdown: Cyclical or Structural?’, The World
Bank Economic Review, 34 (1), 121–142.
II.7.6 The decline in exports in 2023-24 was II.7.7 Apart from petroleum products and gems
broad-based, with about half of the export and jewellery, readymade garments (RMG) of all
basket recording a fall. The contraction was driven textiles, organic and inorganic chemicals and rice
contributed to the decline in merchandise exports.
by petroleum, oil and lubricants (POL) and gems
Electronic goods, drugs and pharmaceuticals,
and jewellery. On the other hand, non-oil non- engineering goods, iron ore, and cotton yarn/
gems and jewellery exports witnessed expansion fabs./made-ups, on the other hand, recorded
(Chart II.7.4). expansion (Chart II.7.5).
68
ECONOMIC REVIEW
Chart II.7.4: India’s Merchandise Exports Chart II.7.5: Relative Contribution of Major Sectors to
500 50 Export Growth (2023-24 over 2022-23)
450 Electronic Goods (23.6) 1.2

40
400 Drugs & Pharmaceuticals (9.7) 0.5
350 Engineering Goods (2.1) 0.5

30
Growth (per cent)

300
US$ billion
Iron Ore (117.7) 0.5

250 20 Cotton Yarn/Fabs./Made-ups,
Handloom Products, etc. (6.7) 0.2
200
Rice (-6.5) -0.2
10
150 Organic & Inorganic
Chemicals (-3.2) -0.2
100
0 RMG of all Textiles (-10.2) -0.4
50
-1.2
0 -10
2019-20 2020-21 2021-22 2022-23 2023-24 Petroleum Products (-13.7) -3.0
POL Gems and Jewellery Percentage points

Non-oil Non-gems and Jewellery Total (RHS)
Note: Figures in parentheses are y-o-y per cent change.
Source: DGCI&S. Source: DGCI&S and RBI staff estimates.
II.7.8 Exports of petroleum products dropped by II.7.9 Exports of engineering goods - one-fourth
13.7 per cent (y-o-y) in US$ terms in 2023-24 due of the total export basket - increased by 2.1 per
to softening oil prices, offsetting the increase in cent (y-o-y) during 2023-24, supported by aircraft,
volume terms (Chart II.7.6a). Among the top ten spacecraft and parts, and electric machinery and
export destinations, five witnessed an increase in equipment. On the other hand, iron and steel,
supplies (Chart II.7.6b). aluminium and its products, and zinc and its
Chart II.7.6: India’s Exports of Petroleum Products
Source: DGCI&S.
69
Chart II.7.7: India's Engineering Goods Exports - Chart II.7.8: India’s Rice Exports
Relative Contribution (2023-24 over 2022-23)
Ban on Ban on
broken rice non-basmati
2,500 export, cess 1,200
on some white rice
categories exports
1,000
2,000
Volume (Thousand tonne)
Value (US$ million)

800
1,500
600
MEP on
1,000 basmati rice,
duty on
parboiled 400
rice
500
200
0 0
Jul-22
Jul-23
Oct-22
Oct-23
Apr-22
Feb-23
Apr-23
Feb-24
Aug-22
Sep-22
Dec-22
Nov-22
Jan-23
Aug-23
Sep-23
Dec-23
Nov-23
Jan-24
Jun-22
Jun-23
Mar-23
May-22
Mar-24
May-23
Note: Figures in parentheses are y-o-y per cent change. MEP: Minimum Export Price.
Source: DGCI&S and RBI staff estimates. Source: DGCI&S.
products dragged down overall export growth export markets for smartphones were the US, the
(Chart II.7.7). UAE, the UK, the Netherlands and Italy.
II.7.10 Agricultural exports registered a decline Chart II.7.9: Electronic Goods Exports
of 9.0 per cent (y-o-y) to reach US$ 46.8 billion 35
during 2023-24. Rice exports contracted by 6.5 30
per cent (y-o-y) to US$ 10.4 billion during 2023- 25
24, due to restrictions on exports to improve

US$ billion
20
domestic supplies (Chart II.7.8).
15
II.7.11 Exports of electronic goods at US$ 29.1 10
billion grew by 23.6 per cent (y-o-y) during 2023- 5
24, propelled by mobile phones (accounting 0
for more than half of total electronic goods

2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
exports) benefitting from the production-linked

incentive (PLI) scheme for large scale electronics Mobile Phones Rest of Electronic Goods
manufacturing (LSEM)56 [Chart II.7.9]. Major Source: DGCI&S.
56
The government introduced the PLI scheme for LSEM in April 2020 and it provides an incentive of 4-6 per cent on net incremental sale
over the base year to eligible companies for a period of five years. A second round of PLI for LSEM was launched in March 2021 for electronic
components, with incentive of 3-5 per cent for a period of four years.
70
ECONOMIC REVIEW
Chart II.7.10: Drugs and Pharmaceuticals
Source: DGCI&S.
II.7.12 Exports of drugs and pharmaceuticals, imports was led by POL, coal, pearls, precious,
accounting for 6.4 per cent of India’s merchandise and semi-precious stones, fertilisers and organic
exports, rose by 9.7 per cent in 2023-24 on higher and inorganic chemicals. Electronic goods, gold,
shipments of all the sub-components, with double machinery, pulses, and non-ferrous metals, on
digit growth in drug formulations, biologicals and the other hand, supported overall import growth
surgicals (Chart II.7.10). (Chart II.7.12).
II.7.13 Merchandise imports at US$ 675.4 billion II.7.14 POL imports (26.6 per cent of total
contracted by 5.7 per cent during 2023-24, mainly merchandise imports) declined by 14.2 per cent
due to lower prices (Chart II.7.11). The decline in to US$ 179.6 billion during 2023-24, mainly due
Chart II.7.11: India’s Merchandise Imports Chart II.7.12: Relative Contribution of Major Sectors to
Import Growth (2023-24 over 2022-23)
Electronic Goods (13.7) 1.5
Gold (30.1) 1.5
Machinery, Electrical & Non- 0.5

electrical (7.6)
Pulses (92.7) 0.3
Non-ferrous Metals (8.0) 0.2
Organic & Inorganic Chemicals -0.9

(-20.1)
Fertilisers, Crude & -0.9
Manufactured (-39.2)
Pearls, Precious & Semi- -1.0
precious Stones (-22.4)
Coal, Coke & Briquettes, etc . -1.5
(-21.8)
Petroleum, Crude & Products -4.2
(-14.2)
Percentage points
Note: Figures in parentheses are y-o-y per cent change.

Source: DGCI&S. Source: DGCI&S and RBI staff estimates.
71
Chart II.7.13: POL
Source: DGCI&S.
to lower prices as volumes expanded by 0.8 per II.7.15 Fertiliser imports, around one-third of
cent (Chart II.7.13a). Russia’s share in supply domestic consumption, declined by 39.2 per cent
of crude oil to India increased to 38.1 per cent to US$ 10.5 billion during 2023-24 on lower prices
during 2023-24 from 22.2 per cent in 2022-23 (Chart II.7.14).
while that of the Middle East region moderated
II.7.16 Coal imports at US$ 38.9 billion in
(Chart II.7.13b).
2023-24 fell by 21.8 per cent (y-o-y), benefitting
from lower prices even as underlying volumes
Chart II.7.14: India’s Fertiliser Imports increased by 11.3 per cent57 (Chart II.7.15).
20,000 250
18,000 II.7.17 Gold imports at US$ 45.5 billion

16,000 200 during 2023-24 rose by 30.1 per cent (y-o-y),
14,000
underpinned by increase in volume (17.2 per cent)
12,000 150
as well as prices (10.2 per cent) [Chart II.7.16].
US$ million
10,000
8,000 100
II.7.18 Imports of electronic goods at US$ 87.9
6,000 billion during 2023-24 expanded by 13.7 per cent
4,000 50 (y-o-y), driven by electronic components, telecom
2,000 instruments and computer hardware (Chart
0 0 II.7.17).
II.7.19 The merchandise trade deficit fell by

10.0 per cent (y-o-y) to US$ 238.3 billion during
Source: DGCI&S and World Bank.
2023-24. The oil deficit accounted for around
57
India is the world’s second largest consumer of coal, with a 14 per cent share in global demand [Coal 2023, International Energy Agency
(IEA)].
72
ECONOMIC REVIEW
Chart II.7.15: Coal Imports and Price
a. India's Coal Imports b. International Coal Price

30 5
25
4
US$/metric tonne
20
3
Million tonne
US$ billion
15
2
10
5 1
0 0
Apr-2023
May-2023
Jun-2023
Jul-2023
Aug-2023
Sep-2023
Oct-2023
Nov-2023
Dec-2023
Jan-2024
Feb-2024
Mar-2024
Volume Value (RHS)
Source: DGCI&S and World Bank.
40.1 per cent (Chart II.7.18a). Amongst major rose during 2023-24 (April-December) over the
trading partners, India’s trade deficit with Russia, previous year. Software services and business
Switzerland and China widened, while surpluses services exports together account for around
improved in respect of the US, the Netherlands 70 per cent of India’s services exports, and they
and the UK (Chart II.7.18b). increased by 11.0 per cent (y-o-y) during the same
period (Chart II.7.19). Amongst other services,
4. Invisibles exports of travel services grew by 27.6 per cent,
II.7.20 Net receipts from invisibles - cross-border benefitting from the lifting of pandemic-related
transactions in services, income, and transfers - movement restrictions. Transportation receipts fell
Chart II.7.16: Gold Imports Chart II.7.17: Electronic Goods Imports

140 2,200 90,000
80,000
120
2,100
70,000
100 60,000
2,000
US$ million
US$/troy ounce
50,000
80
Tonne
1,900 40,000
60
30,000
1,800
40 20,000
34,364
10,000 25,127
1,700
20
0
2022-23 2023-24
0 1,600
Electronics Components Telecom Instruments
Apr
Jun
Jul
Sep
Dec
Jan
Feb
Mar
Oct
May
Nov
Aug
Computer Hardware, Peripherals Electronics Instruments
Volume, 2022-23 Volume, 2023-24 Consumer Electronics Accumulators and Batteries

Price, 2023-24 (RHS) Price, 2022-23 (RHS) Electrodes
Source: DGCI&S and World Bank. Source: DGCI&S and World Bank.
73
Chart II.7.18: India’s Merchandise Trade Deficit
TB: Trade Balance.

Note: A positive ∆ export / ∆ import implies higher exports / imports and vice versa.
Source: DGCI&S and RBI staff estimates.
by 23.9 per cent, largely driven by a softening in mainly representing remittances by Indians
global freight rates: the average Baltic Dry Index 58 employed overseas, witnessed a y-o-y growth
fell by 19.3 per cent over the previous year during of 3.4 per cent during April-December 2023. Net
April-December 2023. Private transfer receipts, outgo on the primary income account increased
over the previous year by 6.2 per cent, reflecting
higher interest and dividend payments.
Chart II.7.19: Composition of India's Services Exports
90 II.7.21 Services export growth decelerated
80 in 2023-24 due to weakening global demand.
70
The increase in the value of global commercial
60
50
services was lower at 9.0 per cent in 2023 from
40 15.1 per cent in 2022. India retained its position
30 in the top five exporting countries during 2023
20
(Chart II.7.20). According to Gartner59, global
information technology (IT) spending is expected
10
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 to increase to US$ 5.1 trillion in 2024 from US$
2019-20 2020-21 2021-22 2022-23 2023-24
4.7 trillion in 2023, which should support India’s
software services exports.
II.7.22 Inward remittances to India stood at US$

*: Includes insurance services, communication services and government
not included elsewhere.
86.7 billion in 2023-24 (April-December). India
remains the highest remittance receiving economy
Source: RBI.
58
A shipping and trade index, created by the Baltic Exchange (London), which measures the cost of transporting dry bulk raw materials such
as coal, iron and steel.
59
Gartner Inc. is an American technological research and consulting firm, known for its research and reports on the IT industry and forecasts
on worldwide IT spending.
74
ECONOMIC REVIEW
Chart II.7.20: Growth in Country-wise Exports of India. The average cost of sending remittances
45
Services of US$ 200 to India declined from 5.51 per cent
in Q4:2020 (the highest since Q1:2019) to 4.95
29.6
30 per cent in Q3:2023, according to the World Bank
20.4
13.1 14.6 estimates. Generally, the amount of remittance

15
Per cent
receipts and the cost of remittances have a

8.4 6.8 6.1 6.2 5.5
3.4 2.4
0
-0.6
-3.0
negative relationship (Chart II.7.21b).
-5.9
-15 II.7.23 Under the income account60, the deficit

widened during 2023-24 (April-December), with
-30
the expansion in payments outpacing that in
US
Japan
EU
UK
India
South Korea
China receipts. Higher interest/discount earnings on the

Reserve Bank’s investment of its foreign currency
2022-23 (April-February) 2023-24 (April-February)
Source: WTO and RBI.

assets (FCAs) abroad were offset by outgoes on
interest on liabilities such as external commercial
borrowings (ECBs), external assistance, short-
globally (Chart II.7.21a). According to the World term credits and non-resident deposits, and
Bank, India’s inward remittances are estimated at payment of dividend to non-resident shareholders
US$ 135 billion in 2024, with a share of 15.2 per (both direct and portfolio investors).
cent in global remittances. Strong labour markets II.7.24 India’s CAD narrowed in 2023-24 (April-
in major advanced economies such as the US December) to US$ 31.0 billion (1.2 per cent of
and Europe have supported remittance flows to GDP) from US$ 65.6 billion (2.6 per cent of GDP)
Chart II.7.21 Inward Remittances
a. Inward Remittances Across Major Recipient Countries b. Inward Remittance Flows and Average Cost of Receiving a
US$ 200 Remittance (Q1:2011-Q3:2023)^
140 12
India
120
100 10
US$ billion
Log (inward remittances)
80
8
60
40 6
20
0 4
Bangladesh
Pakistan
France
Philippines
Mexico
India*
Egypt
Guatemala
Nigeria
China
Germany
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0
2022 2023 (Estimates) 2024 (Forecast) Log (remittance cost)
*: Based on India’s BoP statistics.

^: Based on average cost of receiving US$ 200 for the period Q1:2011-Q3:2023.
Note: Data on inward remittances are in US$ million, while that of remittance cost are in terms of per cent of total transaction amount.
Source: RBI and World Bank.
60
Income on cross-border investments and compensation of employees that domestic resident entities earn from/pay to the rest of the
world.
75
Chart II.7.22: Composition of India's Current Account Balance (CAB)
Source: RBI.
a year ago (Chart II.7.22). This was the outcome 73.9 per cent (Chart II.7.24). Sector-wise, the
of a fall in the merchandise trade deficit as well as services sector (including computer services,
a higher surplus in services trade. communication services, financial services
and business services) accounted for a major
5. External Financing share of FDI equity flows into India, followed by
II.7.25 During 2023-24 (April-December), capital manufacturing, electricity and other energy, retail
flows were robust, driven by a turnaround in and wholesale trade, and transport (Appendix
foreign portfolio investment (FPI) flows. Net Table 9).
inflows under non-resident deposits and external II.7.27 Outward FDI from India increased by
commercial borrowings were higher than a year 13.9 per cent during 2023-24 on a y-o-y basis.
ago. Net foreign direct investment (FDI) flows
were, however, lower on account of a rise in Chart II.7.23: Financing of Current Account Deficit
repatriation of FDI from India. Overall, net capital 4
inflows were higher while CAD moderated, leading

2
to an accretion to foreign exchange reserves on
Per cent of GDP
a BoP basis (excluding valuation effects) by US$ 0
32.9 billion during April-December (Chart II.7.23

and Appendix Table 8). -2
II.7.26 Net FDI (i.e., net inward FDI minus -4
net outward FDI) flows fell to US$ 10.6 billion

-6
during 2023-24 from US$ 28.0 billion a year ago.
2019-20
2020-21
2021-22
2022-23
2022-23
(Apr-Dec)
2023-24
(Apr-Dec)
While gross inflows by non-residents remained

resilient, repatriation/disinvestment of FDI in India FDI FPI ECBs
increased (Table II.7.2). During 2023-24, the top Trade Credit Banking Capital Others
FDI source countries were Singapore, Mauritius, Increase (-)/Decrease (+) in Reserves CAB
the US, the Netherlands and Japan, contributing

Source: RBI.
76
ECONOMIC REVIEW
Table II.7.2: Foreign Direct Investment Inflows

(US$ billion)
Item 2020-21 2021-22 2022-23 2023-24
1 2 3 4 5
1. Net FDI (1.1 - 1.2) 44.0 38.6 28.0 10.6

1.1 Net Inward FDI (1.1.1 - 1.1.2) 54.9 56.2 42.0 26.5
1.1.1 Gross Inflows 82.0 84.8 71.4 71.0
1.1.2 Repatriation/Disinvestment 27.0 28.6 29.3 44.4
1.2 Net Outward FDI 11.0 17.6 14.0 16.0
Source: RBI.
Singapore, the US, the UAE, the UK, and FPI flows in 2023-24 among peer emerging
the Netherlands were the major destinations. economies on the back of robust domestic GDP
Financial, insurance and business services, growth, brightening medium-term prospects and
manufacturing, and wholesale, retail trade, strong corporate earnings.
restaurants and hotels were the major sectors
attracting India’s overseas direct investment II.7.29 FPI inflows in the equity market were
during 2023-24. primarily recorded in financial services,
automobiles, capital goods, oil, gas and
II.7.28 Foreign portfolio investors turned large
consumable fuels, and information technology
net buyers in the domestic market in 2023-24
after being net sellers in 2022-23. During 2023- sectors (Chart II.7.26). Even as the investments
24, net FPI inflows amounted to US$ 41.6 billion by FPIs in the debt market increased during the
as against an outflow of US$ 5.9 billion during year, the utilisation remains below the available
2022-23 (Chart II.7.25). India attracted the highest investment limits.
Chart II.7.24: Source Country-wise Inflow of FDI (Equity) Chart II.7.25: Net Foreign Portfolio Flows to India
25
20
15
10
US$ billion
-5
-10
-15
-20
Q1:2018-19
Q2:2018-19
Q3:2018-19
Q4:2018-19
Q1:2019-20
Q2:2019-20
Q3:2019-20
Q4:2019-20
Q1:2020-21
Q2:2020-21
Q3:2020-21
Q4:2020-21
Q1:2021-22
Q2:2021-22
Q3:2021-22
Q4:2021-22
Q1:2022-23
Q2:2022-23
Q3:2022-23
Q4:2022-23
Q1:2023-24
Q2:2023-24
Q3:2023-24
Q4:2023-24
Equity Debt Total
Source: RBI. Source: NSDL.
77
Chart II.7.26: Change in FPIs’ Exposure in Equity Market Chart II.7.27: External Commercial Borrowings to
India (Net)
800
600
400
200
-200
Automobile and Auto
Components
Capital Goods
Oil, Gas &

Consumable Fuels
Telecommunication
Consumer Durables
Financial Services
Construction Materials
Information
Technology
Realty
Metals & Mining
2022-23 2023-24
*: Includes sectors such as fast-moving consumer goods, healthcare, power,

chemicals and consumer services.
Source: NSDL. Source: RBI.
II.7.30 ECB flows exhibited a turnaround during II.7.32 Short-term trade credit declined during
2023-24 with net inflow of US$ 3.5 billion as 2023-24 in line with the contraction in merchandise
compared to net outflow of US$ 4.1 billion a year imports, with net outflow of US$ 1.8 billion during
ago (Chart II.7.27). April-December 2023 as compared with a net
inflow of US$ 6.8 billion a year ago. Around 35
II.7.31 More than four-fifths of the ECB
per cent of the trade credit was raised for imports
agreement amounts were utilised for on-lending/
of crude oil, gold, coal and copper.
sub-lending, rupee expenditure for local capital
goods, modernisation, refinancing of earlier Chart II.7.28: End Use of ECBs during 2023-24
(Share in Total Inflows)
ECBs and new projects (Chart II.7.28). Within 29.5
30
ECBs, rupee denominated loans and rupee
denominated bonds accounted for 5.3 per cent
20
of the total agreement amounts during 2023-24
Per cent
14.1 13.5 13.1
as compared with 8.0 per cent a year ago. Of the 10

10.1
8.4
total agreement amounts during 2023-24, 50.8 4.4

2.8 2.2 2.0
per cent of the loans were explicitly hedged, 15.3 0
per cent were loans from FDI parent companies

for Loc.CG
Others
Loans
Rupee Expenditure
Modernisation
ECB
New Projects
Import of Capital Goods
Working Capital
Refinancing of Earlier
Refinancing of Rupee
Infrastructure
Development
On-lending/Sub-lending
(excluding INR loans) and 5.3 per cent were

denominated in the INR. The remaining 28.6 per
cent comprised other ECBs, including naturally
hedged loans (i.e., borrowers’ business earnings Loc. CG: Local Capital Goods.
in foreign currency). Source: RBI.
78
ECONOMIC REVIEW
Table II.7.3: Flows under Non-Resident Deposit Accounts

(US$ billion)
Item 2020-21 2021-22 2022-23 2023-24

1 2 3 4 5
1. Non-Resident External (Rupee) Account 8.8 3.3 2.5 4.2
2. Non-Resident Ordinary Account 2.3 3.5 4.0 4.2
3. Foreign Currency Non-Resident (B) Account -3.8 -3.6 2.4 6.4
Non-Resident Deposits (1+2+3) 7.4 3.2 9.0 14.7
Source: RBI.
II.7.33 Net inflows under non-resident deposits 6. Vulnerability Indicators

surged to US$ 14.7 billion during 2023-24 from II.7.34 At end-December 2023, India’s external
US$ 9.0 billion a year ago, with accretions debt increased by US$ 23.9 billion over its level
under all the three schemes - Non-Resident at end-March 2023. However, as a ratio to GDP,
(External) Rupee (NRE) deposits; Non-Resident it declined and remained the lowest among
emerging market peers (Table II.7.4).
Ordinary (NRO) accounts; and Foreign Currency
Non-Resident (Bank) [FCNR(B)] deposits II.7.35 India’s foreign exchange reserves rose
(Table II.7.3). during 2023-24, strengthening the buffers for
Table II.7.4: External Vulnerability Indicators (End-March)

(Per cent, unless indicated otherwise)
Indicator 2013 2022 2023 End-December

2023
1 2 3 4 5
1. External Debt to GDP Ratio 22.4 20.0 19.0 18.7
2. Ratio of Short-term Debt (Original Maturity) to Total Debt 23.6 19.7 20.6 19.5
3. Ratio of Short-term Debt (Residual Maturity) to Total Debt 42.1 43.2 44.0 43.9
4. Ratio of Concessional Debt to Total Debt 11.1 8.3 8.2 7.7
5. Ratio of Reserves to Total Debt 71.3 98.1 92.7 96.0
6. Ratio of Short-term Debt (Original Maturity) to Reserves 33.1 20.0 22.2 20.3
7. Ratio of Short-term Debt (Residual Maturity) to Reserves 59.0 44.0 47.4 45.7
8. Reserve Cover of Imports (in Months)* 7.0 11.8 9.6 11.0
(11.4)
9. Debt Service Ratio (Debt Service to Current Receipts) 5.9 5.2 5.3 6.5
10. External Debt (US$ billion) 409.4 619.0 624.3 648.2
11. Net International Investment Position (NIIP) [US$ billion] -326.7 -358.2 -367.5 -370.3
12. NIIP/GDP Ratio -17.8 -11.6 -11.3 -10.8
13. CAB/GDP Ratio# -4.8 -1.2 -2.0 -1.2
*: Based on merchandise imports of latest four quarters, published in BoP statistics.

#: CAB/GDP Ratio in column 5 pertains to April-December 2023.
Note: Figure in parenthesis pertains to end-March 2024.
Source: RBI and Government of India.
79
mitigating external risks and spillovers. They were 7. Conclusion

placed at US$ 646.4 billion as at end-March 2024, II.7.36 India’s external sector strengthened
an increase of US$ 68.0 billion over end-March during 2023-24. The current account deficit
2023. At end-December 2023, India’s foreign narrowed, remaining sustainable and well
exchange reserves were five times higher than financed. Capital flows recovered and helped to
short-term external debt on original maturity basis augment foreign exchange reserves. Accordingly,
and more than two times short-term external debt the economy’s ability to withstand spillovers
on residual maturity basis. As at end-March 2024, from adverse global macro-financial shocks was
foreign exchange reserves provided a cover of enhanced, contributing to overall macroeconomic
11.4 months of imports for 2023-24. and financial stability.
80

Economic Review: ANNUAL REPORT 2023-24

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ANNUAL REPORT 2023-24

II.1.4 General government finances exhibited II.2 THE REAL ECONOMY

Consumption Table II.2.1: Real GDP Growth

II.2.4 Private final consumption expenditure Component Growth (per cent)

demand – slackened in 2023-24. Deficient and 1 2 3 4 5 6

Source: Joint Plant Committee, Office of Economic Adviser, NSO and

Table II.2.2: Financial Saving of Household Sector

GNDI: Gross National Disposable Income.

Chart II.2.4: Stock of Excess Household Savings

a. Emerging Economies b. Advanced Economies

II.2.7 The saving-investment gap widened during

II.2.8 As per the SAE of the NSO, aggregate

Table II.2.3: Real GVA Growth

Sector 2019-20 2020-21 2021-22 2022-23 2023-24

Source: NSO and RBI staff estimates.

Y-o-Y growth 3Q MA SAAR Q-o-Q SAAR

Chart II.2.7: Rainfall and Reservoir Levels

a. South-West Monsoon (Spatial) b. Reservoir Level (as on March 28)

Per cent of full reservoir level

Source: IMD and Central Water Commission (CWC), GoI.

Table II.2.4: Agricultural Crop Production 2023-24*

Crop 2022-23 2023-24 2023-24

Chart 1: Production of Major Cereals vis-à-vis Millets in India

d. Productivity of Millets* – Major Producers (2022)

Table 1: Determinants of Yield Gap in Bajra Production

Although millets are considered drought resistant crops, References:

Growth (per cent, y-o-y)

Chart II.2.10: Index of Industrial Production

Mining Manufacturing Electricity IIP

Source: MoSPI, GoI.

Renewable Power Generation

Renewable Share in Total Power Generation (RHS)

GWh: Gigawatt hours.

Table II.2.5: High Frequency Indicators - Growth Rate

II.2.18 The services sector composite index 4. Employment

II.2.20 As per the quarterly PLFS, which covers

urban areas, the LFPR as well as the worker-

GVA Growth in Services Excluding PADO SSCI (RHS)

Chart II.2.14: Labour Market Indicators – Annual PLFS

a. All India b. Rural, Urban

Unemployment Rate (RHS) UR (Rural) [RHS] UR (Urban) [RHS]

Source: MoSPI, GoI.

Growth (per cent, y-o-y)

Growth (per cent, y-o-y)

Table 1: Productivity and ICT Sector

5. Conclusion buoyant, given the government’s sustained focus

II.3 PRICE SITUATION Chart II.3.1: Inflation Across Major Components

II.3.1 In India, headline inflation23 moderated 18

response to monetary policy tightening, supply

other hand, core inflation eased on a sustained -2

Table II.3.1: CPI Headline Inflation – Key Summary Statistics

Per cent (y-o-y)

Base Effect M-o-M Change

Chart 1: Inflation Distribution (1995 – 2023)

Post-FIT Pre-FIT Post-FIT Pre-FIT

Source: RBI staff estimates.

convergence, particularly for core inflation. While the References:

Table 1: Effect of Supply Shock on Spatial Variations in Inflation28

Model  (1) (2) (3) (4)

Spatial Autocorrelation 0.715* 0.725* 0.701* 0.710*

Absolute Rainfall Deviation 0.021* 0.020* 0.029* 0.029*

Direct Effect 0.045* 0.047* 0.041* 0.044*

Indirect Effect 0.128* 0.131* 0.121* 0.122*