“RBI Bulletin Highlights Economic Recovery Following Q2 Slowdown”
The Indian economy is showing signs of recovery after the slowdown witnessed during the second quarter of the fiscal year, according to the latest Reserve Bank of India (RBI) bulletin released on Tuesday. The RBI’s article on the ‘State of the Economy’ in its December edition highlighted key factors driving this recovery, including strong festival activity and sustained rural demand.
The Indian economy is showing signs of recovery after the slowdown witnessed during the second quarter of the fiscal year, according to the latest Reserve Bank of India (RBI) bulletin released on Tuesday. The RBI’s article on the ‘State of the Economy’ in its December edition highlighted key factors driving this recovery, including strong festival activity and sustained rural demand.
The bulletin pointed out that the global economy remains resilient with steady growth and moderating inflation. High-frequency indicators (HFIs) for the third quarter of 2024-25 suggest a positive shift, with economic momentum gaining strength. The recovery is primarily attributed to robust domestic private consumption demand and government spending on infrastructure.
The article further noted that rural demand, fueled by record foodgrains production, is a significant driver of this economic uptick. The RBI expects government investments in infrastructure to provide additional support, boosting economic activity and investment in the coming months.
However, the report also highlighted global headwinds, such as rising risks to growth and inflation, which could affect the outlook. Despite the ongoing challenges, the RBI maintains an optimistic view of the economy’s recovery trajectory. India’s GDP growth had slowed to a seven-quarter low of 5.4% in the July-September period, reflecting challenges on both the demand and production sides of the economy.
On the expenditure side, the primary factor contributing to the slowdown was a decline in fixed capital formation, while the production side faced challenges in manufacturing. Inflationary pressures have also affected the overall economic performance, with purchasing power eroded and sales growth of listed non-financial corporations weakening. The persistence of inflation has led to a situation where businesses are less inclined to invest in new capacity, instead focusing on utilizing existing resources to meet demand.
The RBI report further emphasized that the slowdown in consumer demand is linked to slower corporate wage growth, which has also affected private investment. Another emerging concern is the deceleration in nominal GDP growth, which may limit fiscal spending, especially on capital expenditure (capex), and pose challenges in meeting budgetary deficit and debt targets.
Despite these challenges, the RBI’s projections based on in-house modeling suggest a recovery in GDP growth to 6.8% in Q3 and 6.5% in Q4 of 2024-25. Growth for 2025-26 is expected to be at 6.7%, with headline CPI inflation averaging 3.8% during the same period. The RBI had previously projected GDP growth of 6.6% for 2024-25, with a positive outlook for the third and fourth quarters at 6.8% and 7.2%, respectively.
The bulletin concludes by noting that the views expressed are those of the authors and not the official stance of the RBI.
Sources By Agencies
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