According to the RBI bulletin for July, the long-awaited boost in rural consumption, driven by increasing incomes, is accelerating aggregate demand. This growing momentum is expected to stimulate a rebound in private capital expenditure.
“This stimulus to demand is expected to reinvigorate the hitherto subdued participation of the private sector in total investment,” the bulletin released Monday said in the state of the Economy section, which is co-authored by the RBI deputy governor Michael Patra.
High frequency indicators suggested that demand conditions remained firm in July with e-way bills recording a growth of 19.2 per cent and toll collections rising by 9.4 per cent in July.
Project financing soars to Rs 2.45 trillion in FY25, up from Rs 1.59 trillion in FY24
No of financed projects jump from 944 in FY24 worth Rs 3.9 trillion up from 547 projects worth Rs 2.66 trillion in FY23.
Overall, investment plans of 1,505 projects worth Rs 5.65 trillion made in FY24, as against 982 projects in FY23 with investment intentions of Rs 3.5 trillion.
Top investing states: Gujarat, Maharashtra, Karnataka, Andhra Pradesh and Uttar Pradesh accounting for 55 percent of the total cost of projects sanctioned in FY24.
As much as 89 percent of the total are green field projects in FY24 of which 55.5 percent are in roads & bridges and power.
The chapter also says that headline inflation moderated from its spike in June to 3.5 per cent in July, but quickly notes that this is primarily due to the downward statistical pull of base effects.
Yet the bulletin notes the significant decline in prices of vegetables and cereals, based on the high frequency food price data which show that prices of cereals, pulses, edible oil moderated in August (till August 12),
But the article was quick to note that despite the moderation in headline inflation and overall food inflation, year-on-year inflation in cereal prices remains high at 8.1 per cent in July, while overall retail inflation plunged to 3.5 in July, first since 2019 from 5.1 per cent in June. The 154 bps fall was on account of a favourable base effect of 2.9 percent which more than offset a positive momentum of 1.4 per cent, bulletin said.
“High frequency food price data for August so far (up to 12th) show that the price of cereals, pulses and edible oil recorded a broad-based moderation,” the bulletin said, adding among key vegetables, potato prices continued to edge up, while onion and tomato prices declined.
Within overall CPI, prices increased by 2.5 percent (m-o-m) in the food group and 0.5 percent in the core group (i.e., excluding food and fuel) whereas the fuel group recorded a 0.2 per cent decline in prices over the previous month.
Food inflation declined to 5.1 per cent in July from 8.4 per cent in June, driven by a favourable base effect of 5.7 per cent which more than offset a strong momentum. In fact, the momentum of food prices at 2.5 per cent in July, over and above the momentum of 2.7 per cent recorded in June, indicates continuing build-up of underlying price pressures within the food group.
In terms of sub-groups, inflation moderated in cereals, fruits, vegetables, pulses, sugar and non-alcoholic beverages but edged up in respect of meat, fish, eggs, and prepared meals.
Vegetable prices inflation declined precipitously to 6.8 per cent in July from 29.3 per cent in June, recording its first single digit print in nine months. This was disproportionately driven by tomato prices.
Despite a month-on-month price increase of 41.8 per cent in July 2024, year-on-year inflation in tomato prices plummeted on account of the base effect of the unprecedented price increase of 214.3 per cent recorded a year ago.
On the macro-economic front, the bulletin said persistent geopolitical tension, rekindled fears of a potential recession in key economies and financial market volatility in response to monetary policy divergence cast a shadow on global economic prospects even as inflation moderated grudgingly across countries.
Amidst all this, the domestic economy remains resilient. According to the latest round of the Reserve Bank’s survey of households, consumer confidence reflected a sequential moderation in expectation within the optimism zone and the assessment of the current situation remained pessimistic. Capacity utilization in the manufacturing sector recorded an increase during the first quarter of this financial year, although it remained flat on a seasonally adjusted basis.