RBI maintains FY25 GDP growth projection at 7%

The Reserve Bank of India (RBI) has retained the GDP growth projection at 7% for the financial year 2024-25 on the back of expectations of a normal monsoon, moderating inflationary pressures, and sustained momentum in the manufacturing and services sector.

RBI Governor Shaktikanta Das, while introducing the initial bi-monthly monetary policy for the current fiscal, acknowledged the challenges stemming from prolonged geopolitical tensions and escalating disruptions in trade routes.

Looking ahead, Das expressed optimism about the prospects for agriculture and rural activities, citing a promising rabi wheat crop and enhanced expectations for Kharif crops, thanks to the anticipated normal southwest monsoon.

"Strengthening of rural demand, improving employment conditions and informal sector activity, moderating inflationary pressures and sustained momentum in manufacturing and services sector should boost private consumption," Das said.

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Additionally, he noted that the outlook for investment activity remains promising due to several factors: a gradual expansion of the private capital expenditure cycle across various sectors, sustained and robust government capital spending, sound financial positions of both banks and corporations, increasing capacity utilisation, and a growing sense of optimism among businesses, as evidenced by surveys conducted by the RBI. He also mentioned that with rural demand catching up, consumption is expected to support economic growth in 2024-25. Also, urban consumption stayed buoyant as evident from various indicators.

"Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.0% with Q1 at 7.1%; Q2 at 6.9%; Q3 at 7.0%; and Q4 at 7.0%," the RBI said, adding the risks are evenly balanced.

Das informed that the total flow of resources to the commercial sector from banks and other sources at Rs 31.2 lakh crore during 2023-24 is significantly higher than that of last year (Rs 26.4 lakh crore).

External demand improved in February with exports registering double-digit expansion. The trade deficit, however, widened in February as imports also accelerated.

On global growth, the governor said the global economy has remained resilient with a stable outlook as reflected in various high-frequency indicators. Global trade is expected to grow faster in 2024, although weaker than its historical average.

Inflation is moving closer to targets, but the last mile of disinflation is turning out to be challenging, he added.

He also said the worsening debt situation in advanced economies (AEs) can generate spill-overs for emerging market economies (EMEs) in the form of swings in capital flows and volatility in financial markets.