Boosted by festive demand and rural upswing, India’s economy is regaining momentum after a slowdown in Q2 FY2024-25.
New Delhi, December 24: The Reserve Bank of India (RBI) reported signs of economic recovery in the third quarter (October-December) of FY2024-25, driven by strong festival demand and a resurgence in rural consumption.
In its monthly bulletin released on Tuesday, the central bank highlighted positive momentum in rural demand, aided by a brisk expansion in rabi sowing and a moderation in headline CPI inflation to 5.5% in November, primarily due to easing food prices.
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Key Highlights from RBI Bulletin:
- Rural Demand Boost: Improved agricultural prospects and robust rabi sowing support rural consumption.
- Inflation Moderation: Headline CPI inflation eased to 5.5% in November due to a drop in food prices.
- Economic Growth (Q2 FY2024-25): GDP growth slowed to 5.4% in Q2, below the RBI’s forecast of 7%.
Slowdown in Q2 and Its Causes:
The RBI acknowledged the slower-than-expected GDP growth in the July-September quarter, citing:
- Fixed Capital Formation Weakness: Lower capital investments impacted overall growth.
- Manufacturing Concerns: Persistent challenges in the manufacturing sector slowed economic momentum.
- Urban Consumption Slump: Inflation pressures eroded purchasing power, particularly among urban households.
The report also flagged concerns about the slowing nominal GDP growth rate, which could constrain fiscal spending, including capital expenditure, and affect deficit targets.
Inflation and Its Impact:
The RBI reiterated that unchecked inflation poses a significant risk to economic stability, especially in sectors like industry and exports.
“The time to act is now to tackle inflation and revive investment robustly, especially as food prices show a seasonal decline and private consumption gains momentum,” the RBI stated.
Consumption Trends and Market Sentiment:
- Rural Resilience: Rural demand is showing signs of recovery, supported by favorable agricultural prospects.
- Urban Sluggishness: FMCG companies have noted muted urban demand, but believe the worst is over, with signs of stabilization and potential recovery.
The Road Ahead:
With easing inflationary pressures and improving rural consumption, the RBI remains cautiously optimistic about India’s economic outlook. However, it emphasized the need for timely policy interventions to ensure sustained momentum in investment and consumption.
