MUMBAI (Reuters) – India’s growth trajectory is expected to pick up in the second half of 2024-25, driven by domestic private consumption and a sustained revival of 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 momentum witnessed in Q2, driven by strong festival activity and a sustained upswing in rural demand,” the Reserve Bank of India (NS:BOI) said in an article titled ‘State of the Economy’.
Additionally, the prospects for agriculture and rural consumption are looking up due to “brisk” expansion of rabi sowing, it said.
India’s GDP growth rate fell unexpectedly to 5.4% in the July-September quarter, its slowest pace in seven quarters, while inflation in November was well over the RBI’s medium-term target of 4%.
If inflation is allowed to run unchecked, it can undermine the prospects of the real economy, especially industry and exports, the RBI said.
However, the usual winter easing of food prices is setting in and the prospects of private consumption and exports accelerating are getting brighter, it said in the bulletin.
The RBI’s Monetary Policy Committee kept its key interest rate unchanged earlier this month citing inflationary concerns. But it cut banks’ cash reserve ratio for the first time in over four years, effectively easing monetary conditions as economic growth slowed.
High prices are the cause for demand slowdown in India, and aligning inflation to the central bank’s 4% target is key to ensuring sustained economic growth, minutes of the RBI’s latest policy meeting showed.
Sustained government spending on infrastructure is expected to further stimulate economic activity and investment, the bulletin said.
Global headwinds, however, pose risks to the evolving outlook for growth and inflation, it added.