Economic Update: December 2023

• Real gross domestic product (GDP) grew year-on-year (y-o-y) by 7.6% in Q2:2023-24, much higher than the RBI Monetary Policy Committee’s (MPC) earlier projections. The rise in GDP growth was supported by government spending and robust performance in manufacturing, mining, and construction sectors.
• The manufacturing sector, which in the past decade has accounted for 17% of the economy, expanded 13.9% year-on-year in the September quarter, compared to a contraction of 3.8% in the year-ago period. This was mainly on the back of substantial easing in price pressures and strengthening demand from clients. Construction industry did second best with growth at 6.5%.
• The growth in capital formation, an indicator of investment, picked up pace to 11% year-on-year from 8% in the previous three months.
• Despite challenges like surging inflation and multiple interest rate hikes by the RBI, India retains its position as the fastest-growing major economy globally.

• MPC at its meeting on December 8, decided to keep the policy repo rate unchanged at 6.50% and decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
• CPI headline inflation fell by about 2 percentage points since the last meeting of the MPC to 4.9 per cent in October 2023 on sharp correction in prices of certain vegetables, deflation in fuel and a broad-based moderation in core inflation (CPI inflation excluding food and fuel).

Israel-Gaza Crisis:

• Israel – Gaza war continued amid growing international pressure for a humanitarian cease fire.
• The 193-member UN General Assembly overwhelmingly adopted a resolution expressing “grave concern over the catastrophic humanitarian situation in the Gaza Strip and the suffering of the Palestinian civilian population,” and said that Palestinians and Israelis must be protected in accordance with international humanitarian law.
• It put forward two key demands, including “an immediate humanitarian ceasefire” and “the immediate and unconditional release of all hostages, as well as ensuring humanitarian access”.
• Earlier, On October 7, 2023, Palestinian armed groups in Gaza launched thousands of rockets toward Israel and breached through the perimeter fence of Gaza at multiple locations, entering into Israeli towns and killing and capturing Israeli forces and civilians. The Israeli military declared “a state of war alert,” and began striking targets in the Gaza Strip, including residential buildings and health care facilities. Since then, thousands of people have been killed and more than one million have been displaced, as parts of Gaza have been reduced to rubble.

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