Reserve Bank Governor Shaktikanta Das said on Friday that the high-frequency indicators available so far indicated that the slowdown in domestic economic activity eased in the second quarter (Q2) of 2024-25 and then recovered, buoyed by strong festive demand and rising demand. Rural activities.
The RBI governor’s statement came after recent data released by the National Statistics Office (NSO) showed the country’s real gross domestic product (GDP) fell to a seven-quarter low of 5.4 percent in July-September 2024. A growth of 6.7 percent in the April-June 2024 quarter and 8.1 percent in the July-September 2023 period.
On the demand side, rural demand is trending upwards while urban demand is showing some moderation at a higher base, he said while unveiling the RBI’s monetary policy here. “Government consumption is improving and investment activity is also expected to improve.”
However, the RBI Monetary Policy Committee has revised down the GDP growth projection to 6.6 percent from 7.2 percent.
Das said healthy kharif crop production, high reservoir levels and good rabi sowing would support agricultural growth. “Industrial activity is expected to normalize and recover from the lows of the previous quarter. End of monsoon season and expected increase in government capital expenditure may provide some impetus to cement, iron and steel sector,” said Das.
He said that mining and electricity will also be normal after the disruption related to monsoon. The Purchasing Managers’ Index (PMI) for manufacturing remained high at 56.5 for November.
“The service sector is growing at a strong pace. PMI services remained steady at 58.4 in November, indicating continued expansion,” Das said. “On the external front, merchandise exports expanded by 17.2 percent in October 2024, while exports of services showed an encouraging growth. (22.3 percent in October) continues,” he said.
Taking all these factors into account, real GDP growth is now projected at 6.6 percent for 2024-25, up from 6.8 percent in Q3; and Q4 at 7.2 percent. Real GDP growth is projected at 6.9 per cent for Q1 of 2025-26 and 7.3 per cent in Q2, the RBI’s policy panel said on Friday.
He said the near-term inflation and growth outcomes in India since the October policy have been somewhat adverse. “The medium-term forecast on inflation suggests further alignment with the target, while growth is expected to pick up its pace,” he said.
Das said that persistently high inflation would reduce the purchasing power of consumers and adversely affect both consumption and investment demand. The overall effect of these factors for growth is negative. Therefore, price stability is essential for sustainable development. “On the other hand, a growth slowdown – if it persists beyond a point – requires policy support,” he said.
The Reserve Bank’s anti-inflationary monetary policy stance has been an important factor in bringing about the significant dislocation, he said. Going forward, with food prices easing, headline inflation is likely to moderate and re-align with our forecast target.