Rama Krishna Sangem
India’s economic growth is poised to rebound as domestic demand regains strength, though elevated food inflation needs careful monitoring of second-order effects, according to the Reserve Bank of India’s (RBI) State of the Economy report released on January 17 Friday. The report observed that banks are becoming reluctant to lend in the money market amid tight liquidity conditions.
According to the report, rural demand continues to gain momentum, reflecting a resilience in consumption supported by brighter agricultural prospects.
India’s gross domestic product (GDP) growth fell to a seven-quarter low of 5.4 per cent during 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 per cent, according to the first advance estimates for FY25 by the National Statistics Office (NSO).
The RBI report, however, said a revival in public capital expenditure on infrastructure is expected to stimulate growth in key sectors. At the same time, rising input costs in the manufacturing sector, weather-related challenges, and global headwinds could pose risks to this outlook, said the report, authored by RBI staffers, including Michael Patra, who demitted office earlier this week.
The views expressed in the article are of the authors and do not represent the views of the RBI.
India still fastest growing major economy
The NSO estimates confirmed that India remains the fastest-growing major economy, noted the report, attributing the slowdown in the second half of the current financial year to “a host of unfavourable factors”.
The report cited the impact of localised excess rainfall on non-farm activity, along with a lack of visible private capital expenditure (capex) and moderation in general government capital expenditure, as reasons for sluggish growth in the first half. Gross fixed investment in GDP and manufacturing in gross value added (GVA) emerged as the biggest drags on growth,” it said.
espite this, agriculture and allied activities performed reasonably well on the back of a record kharif harvest and higher rabi sowing, which have improved the fortunes of the rural economy, the report noted. Inflation worries still weigh as elevated food inflation could have spillover effects, the report cautions.
“Headline inflation eased for the second successive month in December. Despite the sequential easing, the level of food inflation continues to remain high, with select key products experiencing high double-digit inflation.”
