India’s economy is poised to rebound as domestic demand strengthens, according to the Reserve Bank of India (RBI)’s January bulletin. Improved rural consumption and increased government spending on infrastructure are expected to drive growth, despite challenges like rising input costs and global uncertainties.
Projections from the government suggest GDP growth will slow to 6.4% in the current financial year ending March 2025, down from 8.2% in the previous year. While consumption demand has shown robust growth, capital investments have dipped due to lower spending by both central and state governments. During April-November 2024, the federal government utilized only 46.2% of its budgeted capital expenditure, compared to 58.5% during the same period in 2023.
Rural demand is gaining momentum, supported by better agricultural prospects, which are boosting consumption. Additionally, infrastructure investments are expected to stimulate growth in key sectors, the RBI noted in its State of the Economy report, edited by Michael Patra, who recently retired as deputy governor.
India’s foreign exchange reserves stood at $634.6 billion as of January 3, 2025, enough to cover 11 months of imports and approximately 90% of external debt as of September-end. This highlights the economy’s resilience in managing external pressures.
On inflation, the RBI stated that while headline inflation has moderated, persistent food inflation requires close monitoring.
The RBI remains optimistic about a pickup in government investment in the coming months. High-frequency data suggests that aggregate demand is strengthening, and corporate India is likely to see significant revenue and earnings growth in the third quarter of FY 2024-25 compared to the first half of the year.
Despite these positive indicators, the RBI warned of risks such as rising manufacturing costs, global uncertainties, and weather-related challenges that could impact India’s growth outlook.
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