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Highlights of RBI Annual Report 2023-24 – Chapter 1 to 3

Reserve Bank of India (RBI) has published its annual report for the financial year 2023-24. In a series of articles, we will go through the highlights of the report. This is the first article in the series. 

Legal framework for publication of Annual Report by RBI

Report of the Central Board of Directors on the working of Reserve Bank of India (RBI) for the year is submitted to the Central Government in terms of Section 53(2) of Reserve Bank of India Act, 1934 (RBI Act, 1934).

The letter of transmittal is signed by the RBI Governor and addressed to the Finance Secretary, Ministry of Finance, Government of India.

Documents submitted by RBI to the Central Government

In pursuance of Section 53(2) of RBI Act, 1934, the following documents have been submitted to the Central Government –

  • A copy of the Annual Accounts for the year ended March 31, 2024 certified by RBI’s Auditors and signed by Chief General Manager-in-charge, Deputy Governors and Governor.
  • 2 copies of the Annual Report of the Central Board on the working of RBI during the year ended March 31, 2024.

Chapter 1 – Assessment and Prospects

  • Global growth decelerated to 3.2% during 2023 from 3.5% during 2022. 
  • Global economy is projected to grow by 3.2% each in 2024 as well as in 2025.
  • Global inflation eased to 6.8% in 2023 from 8.7% in 2022 on the back of monetary tightening and restoration of supply chains.
  • Global inflation is projected to moderate to 5.9% in 2024 and 4.5% in 2025.
  • Indian economy expanded at a robust pace in 2023-24, with real Gross Domestic Product (GDP) growth accelerating to 7.6% from 7.0% in the previous year – the third successive year of 7% or above growth.
  • India’s real GDP growth for 2024-25 is projected at 7.0%.
  • Headline inflation softened to 5.4% during 2023-24 from 6.7% in the previous year, driven by the fall in core inflation [Consumer Price Index (CPI) excluding food and fuel] to 4.3% from 6.1%.
  • CPI inflation for 2024-25 is projected at 4.5%.
  • Wholesale Price Index (WPI) inflation averaged (-)0.7% during 2023-24 (as compared with 9.4% a year ago).
  • Indian Rupee (INR) depreciated by 1.4% during 2023-24 (7.8% in the previous year).
  • Gross Fiscal Deficit (GFD) declined to 5.9% of GDP in 2023-24 (RE) from 6.4% of GDP in 2022-23.
  • GFD has been budgeted at 5.1% of GDP for 2024-25.
  • India’s current account deficit (CAD) narrowed in 2023-24 (April-December) to 1.2% of GDP from 2.6% of GDP a year ago. This was the outcome of a fall in the merchandise trade deficit as well as a higher surplus in services trade.
  • UPI platform achieved significant milestones, surpassing 13 billion transactions in a single month in March 2024.
  • A risk-based authentication mechanism, as an alternative to SMS-based one-time password (OTP) for additional factor of authentication (AFA), would be effectuated to address risks in payments.
  • ‘Pradhan Mantri Surya Ghar: Muft Bijli Yojana’ aims to provide free electricity to 1 crore households and a subsidy of up to 40% of the cost of the solar panels to install it on their roofs.
  • According to the Climate Change Performance Index (CCPI) Report 2024, India’s climate action performance improved, making India the 4th best performing nation among 63 countries analysed.

Chapter 2 – Economic Review

  • The withdrawal of ₹2000 banknotes during the year and their return as bank deposits led to a deceleration in currency in circulation as well as reserve money while simultaneously contributing to an acceleration in deposit growth.
  • The average spread of the weighted average call rate (WACR) relative to the policy rate was (+)13 basis points (bps) in 2023-24 as compared with (-)12 bps in 2022-23.
  • BSE Sensex crossed the 74,000 mark - a fresh peak - in March 2024 following strong GDP growth data for Q3:2023-24.
  • Banks mobilised additional resources through certificates of deposit (CDs) to bridge the credit-deposit gap.
  • RBI’s balance sheet size increased to 24.1% of GDP at end-March 2024 from 23.5% at end-March 2023. The balance sheet has normalised to its pre-pandemic level.
  • Net Foreign Assets (NFA) of RBI 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 International Monetary Fund (IMF), which represents India’s quota contribution to the IMF in foreign currency, are not a part of RBI’s balance sheet.
  • In Union Budget 2023-24, the government announced the revamping of credit guarantee scheme for micro and small enterprises with effect from April 01, 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%. Besides, the limit on ceiling for guarantees has been enhanced from ₹2 crore to ₹5 crore.
  • Inward remittances to India stood at US$ 86.7 billion in 2023-24 (April-December). India remains the highest remittance receiving economy globally.
  • According to the World Bank, India’s inward remittances are estimated at US$ 135 billion in 2024, with a share of 15.2% in global remittances.
  • At end-December 2023, India’s foreign exchange reserves were 5 times higher than short-term external debt on original maturity basis and more than 2 times short-term external debt on residual maturity basis. 
  • As at end-March 2024, foreign exchange reserves provided a cover of 11.4 months of imports for 2023-24. 
  • India’s foreign exchange reserves rose to an all-time high of US$ 648.7 billion as on May 17, 2024.

Chapter 3 – Monetary Policy Operations

  • Monetary Policy Committee (MPC) kept the policy repo rate unchanged at 6.50% during 2023-24 and continued with a stance of withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. 
  • RBI issued a directive under Section 42(1A) of RBI Act, 1934 requiring all scheduled banks to maintain with RBI, effective from the fortnight beginning August 12, 2023, an incremental cash reserve ratio (I-CRR) of 10% on the increase in net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023. 
  • I-CRR was reviewed on September 08, 2023, and discontinued in a phased manner. Accordingly, 25% of the impounded I-CRR funds was released on September 09, another 25% on September 23 and the remaining 50% was released on October 07, 2023. 
  • I-CRR was applied as a temporary measure during August 12 to October 07, 2023 to absorb the surplus liquidity resulting from the return of ₹2000 banknotes to the banking system.
  • System liquidity turned into a deficit in H2 on account of the build-up of government cash balances and festival related currency outgo.
  • The reversal of liquidity facilities under both the Standing Deposit Facility (SDF) and the Marginal Standing Facility (MSF) were allowed even during weekends and holidays with effect from December 30, 2023.
  • The interest rate spread (IRS) - the difference between the weighted average lending rate on fresh loans and the weighted average rate on total deposits of banks – impacts monetary transmission.

References

Reserve Bank of India. (2024, May 30). 'RBI Annual Report 2023-24'. Retrieved from https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?year=2024


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