MUMBAI: Pointing to the strong momentum in domestic consumption and investment demand which are fuelling growth, an internal paper from the central bank has reaffirmed that the economy is on sound footing and on course to close the current fiscal year with 7.2 percent growth.
"In spite of the rising geopolitical tensions, our growth outlook is supported by robust domestic engines," the October Bulletin from the Reserve Bank said Monday.
The optimism assumes importance given the stress seen in corporate earnings as well tepid revenue growth as visible from the balance sheets declaration so far by India Inc. It also assumes importance given the falling key growth numbers such as the purchasing managers’ indices both in the services as well as manufacturing segments as well as the latest steeply fallen industrial production numbers.
According to the RBI, the views in the bulletin are not that of the central bank though they are written by its senior analysts and economists.
The bulletin projects real GDP growth to come in at 7.2 percent for the fiscal 2025, highlighting the momentum in consumption and investment demand. It sees Q2 growth at 7 percent, and Q3 & Q4 at 7.4 percent each.
"Our growth story remains intact as its fundamental drivers– consumption and investment demand – are gaining momentum," the bulletin stated, quoting the deputy governor Michael Debabrata Patra as saying in the article on the state of the economy. He adds that private consumption, buoyed by improved rural demand and a strong agricultural outlook, will play a key role in the overall growth in the second half of the fiscal.
"Looking ahead, private investment is showing some encouraging signs in terms of lead indicators while consumption spending is shaping up for a festival season revival," said the article authored by a team led by Patra.
The global economy remained resilient in the first half of 2024, with declining inflation supporting household spending, the bulletin noted. Stable growth momentum amid monetary policy easing are becoming the prevailing theme across most economies, it added.
The bulletin also expects urban demand to remain resilient, supported by the services sector. It points to the government's emphasis on capital expenditure and healthy corporate and bank balance sheets as positive factors bolstering investment activity.
In the first quarter, GDP clipped at a lower than expected 6.7 percent, as the government capex was held back due to the general elections in April through early June. But private consumption and a revival in private investment, which reached the highest share in GDP since FY13, has helped the economy stand tall. On the supply side of the economy, the gross value added or GVA expanded by 6.8 percent, outpacing GDP growth, with strong contributions from industrial and services sectors.
Going forward, the bulletin says sustaining farm growth, on the back of above normal monsoons, will lead to improved Kharif sowing, while manufacturing is expected to benefit from lower input costs and supportive policies.
High-frequency indicators such as the PMI for manufacturing (56.5 in September) and services (57.7) reflect robust expansion across sectors, even though both printed in at their lowest in nine months, says the bulletin.
The bulletin also notes upward trends in both rural and urban demand, with investment activity benefiting from a rebound in government capex and private sector optimism.
On inflation, the bulletin retained the 4.5 percent RBI projection for the year, despite the sharp spike in September when it soared to a nine month high of 5.56 percent after declining to 3.6 percent in July and 3.7 percent in August. The RBI expects October print also to remain high primarily due to base effects and higher food prices, adding that it should trend down from November and December.
