India may grow by 7.5% in Q1 driven by rural spending: RBI
India is likely to grow by 7.5% in the first quarter of the current financial year, driven by rising aggregate demand and non-food spending in the rural economy, according to an article in the RBI’s May bulletin released on Tuesday.
The Indian economy has demonstrated marked resilience in the face of geopolitical headwinds impacting the supply chain, said the article on the state of the economy published in the May Bulletin.
“According to the economic activity index (EAI), activity rebounded in April, and early estimates suggest that GDP growth for Q1: 2024-25 is likely to remain close to 7.5%,” it said.
The EAI was constructed by extracting the common trend underlying 26 high-frequency indicators of economic activity, using a Dynamic Factor Model.
The Centre will be releasing the quarterly GDP estimates for Q4FY24, and provisional estimates of National Income for 2023-24 on 31 May.
The Indian economy grew 8.2% in the June quarter, 8.1% in the September quarter and 8.4% in the December quarter of 2023-24.
The article noted that highfrequency indicators point towards sustained momentum in domestic demand conditions in April 2024. Toll collections increased by 8.6% (y-o-y) in April 2024. Automobile sales increased by 25.4% (y-o-y) in April 2024, led by strong growth in the two-wheelers and three-wheelers segment, while passenger vehicles recorded the highest-ever monthly sales.
“There is a growing optimism that India is on the cusp of a long-awaited economic take-off. Recent indicators are pointing to a quickening of the momentum of aggregate demand,” said the article, prepared by a team led by Reserve Bank Deputy Governor Michael Debabrata Patra.
Non-food spending is rising with rural spending recovery. A modest easing of headline inflation in April confirms the expectation that an uneven and lagged pace of alignment with the target is under way.
It also noted that for the first time in at least two years, rural demand for fast-moving consumer goods has outpaced urban markets in Q4FY24.