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Growth set to rebound, food inflation needs monitoring: RBI report
- Business Standard |
- Economics (Indian Economy) |
- 2025-01-17
- Economic Growth
- The Reserve Bank of India's (RBI)
India's economic growth is expected to rebound with strong domestic demand, despite challenges from elevated food inflation and tight liquidity. The RBI report highlights a slowdown in GDP growth, but notes potential growth from public capital expenditure and resilient rural demand.
India's Economic Growth and Inflation
India's economic growth is expected to rebound with strengthening domestic demand, although food inflation remains a concern. The Reserve Bank of India's (RBI) State of the Economy report highlights these key aspects:
Economic Growth Outlook
- India's GDP growth declined to a seven-quarter low of 5.4% in the July-September period of the current financial year.
- For FY25, GDP growth is projected to slow to a four-year low of 6.4%, according to the NSO.
- Public capital expenditure on infrastructure is expected to stimulate growth in key sectors.
- Potential risks include rising input costs, weather-related challenges, and global economic headwinds.
Factors Influencing Growth
- Rural demand is gaining momentum due to brighter agricultural prospects.
- NSO confirms India as the fastest-growing major economy, despite a slowdown in the second half of the financial year.
- Localized excess rainfall, lack of visible private capital expenditure, and moderation in government capital expenditure are cited for sluggish growth.
- Agriculture and allied sectors performed well, supported by a record kharif harvest and higher rabi sowing.
Inflation Concerns
- Headline inflation eased to a four-month low of 5.2% in December, while food inflation decelerated to 7.7%.
- High food inflation remains concerning, necessitating careful monitoring for second-order effects.
Monetary Policy and Liquidity Conditions
- The Monetary Policy Committee (MPC) has kept the policy repo rate unchanged after a 250 basis point increase from May 2022 to February 2023.
- Tighter liquidity conditions in the banking system are noted, with banks reluctant to lend in the money market.
- Banks' placement of funds under the Standing Deposit Facility (SDF) averaged Rs 83,000 crore in December 2024 to January 2025.
Corporate and Private Consumption
- Early indications suggest better corporate revenue and earnings growth in the third quarter compared to the first half of FY25.
- Private final consumption, driven by e-commerce and q-commerce, is a bright spot in the economy.
- The report suggests rekindling 'animal spirits' through consumption boosts could stimulate economic activity.