India's growth trajectory is expected to accelerate in the second half of 2024-25, driven by domestic private consumption and a sustained recovery in rural demand, the central bank said in its monthly bulletin released on Tuesday.
“High-frequency indicators for the third quarter of 2024-25 indicate that the Indian economy is recovering from the slowdown in dynamics observed in the second quarter, driven by strong festival activity and a sustained recovery in rural demand,” the Reserve Bank of India said in an article titled “State of the Economy.”
Besides, the outlook for agriculture and rural consumption is improving due to the “rapid” expansion of rabi season sowing, the bank said.
India's GDP growth rate unexpectedly fell to 5.4% in the July-September quarter, its slowest pace in seven quarters, while inflation in November was well above target at medium term of 4% set by the RBI.
If inflation is allowed to run wild, it can undermine the prospects of the real economy, particularly industry and exports, the RBI said.
However, the usual winter easing in food prices is setting in and prospects for accelerating private consumption and exports are improving, she said in the bulletin.
The RBI's Monetary Policy Committee kept its key interest rate unchanged earlier this month citing inflationary concerns. But he reduced banks' cash reserve ratio for the first time in more than four years, easing monetary conditions as economic growth slows.
High prices are the cause of slowing demand in India, and aligning inflation with the central bank's 4% target is essential to ensure sustained economic growth, according to the minutes of the latest meeting of RBI monetary policy.
Sustained government spending on infrastructure should further stimulate economic activity and investment, according to the bulletin.
Global headwinds, however, pose risks to the growth and inflation outlook, the bulletin added.
