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.