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A statistical model developed by the Reserve Bank of India (RBI) has pegged India's GDP growth for next year at 6.0 percent, 50 basis points lower than the central bank's official forecast of 6.5 percent mentioned in the October edition of its Monetary Policy Report.

"As part of the suite of models for informing monetary policy formulation, the RBI has developed a dynamic stochastic general equilibrium (DSGE) model," the central bank's monthly State of the Economy article, released on December 20, said.

The article includes Deputy Governor Michael Patra - one of the three RBI representatives on the Monetary Policy Committee (MPC) - as one of its co-authors. The views expressed in the article do not reflect the central bank's official stance.

The dynamic stochastic general equilibrium, or DSGE, model tries to replicate the interplay between economic fluctuations and the role of policy interventions by using 'shocks' - or "surprises in the form of mismatches between expectations and outcomes, and subsequent demand-supply adjustments". The model's assumptions are:

>> global growth of 2.6 percent in 2023-24 and 2.1 percent in 2024- 25

>> global retail inflation of 5.5 percent in 2023-24 and 4 percent in 2024-25

>> a repo rate of 6.5 percent in 2023-24 and 2024-25

>> US Fed funds rate of 6.5 percent in 2023-24 and 2024-25

As per the model, the Indian economy could grow by 7.1 percent in 2023-24 - 10 basis points higher than the RBI's official forecast of 7.0 percent. Interestingly, in the post-policy press conference on December 8, Deputy Governor Michael Patra had said that high-frequency data for October and November - used by the RBI for its 'nowcast', an updated or quick forecast - were "very robust".

"So, if you just take October-November data, you will exceed 7 percent (growth in 2023-24). So, at the current time, 7 percent is a conservative estimate," Patra had said.

As per the RBI's latest 'nowcast', GDP growth in the last quarter of 2023 is tracking at 6.7 percent - 20 basis points higher than the central bank's official view of 6.5 percent. However, the DSGE model estimates the current quarter's growth rate at 6.4 percent.

The statistics ministry will release GDP data for October-December 2023 on February 29, 2024.

@arbindtiwariT