RBI pegs FY25 GDP growth at 7% on better consumption

THE RBI FLAGGED HEADWINDS FROM GEOPOLITICAL RISKS, VOLATILITY IN INTERNATIONAL MARKETS AS RISKS TO GROWTH VIEW

The Reserve Bank of India (RBI) on Thursday projected GDP (gross domestic product) growth for the next financial year at 7% on the back of improved household consumption and upturn in private capex cycle.

The real GDP growth is, however, lower than 7.3% estimated by the National Statistical Office (NSO) for the current 2023-24 fiscal aided by strong domestic economic activity and investments.

The Indian economy grew 7.2% in 2022-23 fiscal.

In its Monetary Policy Statement, RBI governor Shaktikanta Das said the recovery in rabi sowing, sustained profitability in manufacturing and underlying resilience of services should support economic activity in 2024-25.

“Among the key drivers on the demand side, household consumption is expected to improve, while prospects of fixed investment remain bright owing to upturn in the private capex cycle, improved business sentiments, healthy balance sheets of banks and corporates; and government’s continued thrust on capital expenditure,” Das said.

The improving outlook for global trade and rising integration in the global supply chain will support net external demand.

The RBI flagged headwinds from geopolitical tensions, volatility in international financial markets and geo-economic fragmentation as risks to growth outlook.

“Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7% with Q1 (April-June) at 7.2%; Q2 at 6.8%; Q3 at 7.0%; and Q4 at 6.9%. The risks are evenly balanced,” Das said.

To keep inflation within the targeted 4% (+/- 2 %) band, the RBI on Thursday retained benchmark interest rate or repo at 6.5%.

The interest rate setting monetary policy committee (MPC) also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

“Global growth is likely to remain steady in 2024 after a surprisingly resilient performance in a turbulent year gone by. Inflation is edging down from multi-decade highs, with intermittent upticks,” Das said.

Das said rural demand in India continues to gather pace, urban consumption remains strong and investment cycle is gaining steam on the back of increased capex.

Also, there are signs of revival in private investments.