Emerging tensions in the global financial system pose a threat to the Indian economy

Mumbai: In the last financial year, the Indian economy has shown strong resilience and emerged as the fastest growing country among the major economies, but weakness in consumption, weak rural demand and persistent spending pressures in the last six months of financial year 2023 were becoming a matter of concern, according to the Reserve Bank of India (RBI)'s annual report. The report said.

A downside risk to the Indian economy lies amid the possibility of increased financial market volatility due to slowing global growth, geopolitical tensions and renewed stress in the global financial system.

The report has highlighted the weak private investment in the country amid an environment of uncertainty. Inflationary pressures and the effects of fragmentation on world trade are likely to reduce consumer demand, thereby impacting growth.

India's economy slowed down in the last six months of last financial year. Adverse base effects, weak consumer demand due to high inflation, sluggish export growth and raw material cost pressures have been responsible for slowing the economy, the report noted.

In the last financial year, the wage growth of both agricultural and non-agricultural workers was weak. Wages of farm laborers grew by an average of 5.80 percent while wages of non-agricultural workers grew by an average of 4.90 percent.

The recovery in rural demand was slower than that of urban demand. However, despite the global challenges, the economic growth rate of the country has been seven percent in the last financial year.

Inflation is expected to come down to 5.20 percent in the current financial year under stable exchange rate and normal monsoon conditions. Inflation averaged 6.70 percent last financial year.