India’s GDP growth is now on firm footing with urban demand showing good traction while the lagging rural demand is a cause of concern, according to a report by State Bank of India (SBI).

In its 'Ecowrap' research report, SBI said that the GDP growth forecast of the RBI for the current fiscal has undergone some change since April 2023.

While RBI had projected GDP growth at 6.4% in April, this has been slightly revised upwards to 6.5% for the current fiscal, as announced in the latest Monetary Policy Committee (MPC) meeting which concluded on 8 June.

RBI has pegged inflation at 5.1% for FY24, which is above the RBI’s tolerance band of 4%.

The report said that the series of rate hikes in the recent past had resulted in falling unemployment rate, signifying that the apex bank had been able to trim the excess labour demand in the market without contraction in employment.

It further said that the declining current inflation as well falling inflationary expectations for the next financial year gives a clear signal that the RBI will be able to control the rate of price rise by a series of previous rate hikes having its lagged impact, within the tolerance band.

The inflation trajectory is now conditional on the spatial variation of the monsoon and possible development to EL Nino effect. The headline inflation trajectory, measure of the total inflation of an economy, is likely to be shaped by food price dynamics, the report said.

According to the report, the outlook on the global economy is clouded in sideways movement in most of the indicators even when slowdown in advanced economies, weak external demand, tight financial conditions and elevated debt levels pose risks to growth prospects.

On 8 June, the RBI in its monetary policy pressed the pause button for the second time after April to keep the repo rate unchanged at 6.5%.

The report said that supply-side factors contributed more than 50% of the inflation in January 2023, plunged to 46% due to ease in supply-side restrictions.