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India Poised for Economic Surge, Says Reserve Bank of India

4 weeks ago
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India Poised for Economic Surge

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The Reserve Bank of India (RBI) has projected a promising economic outlook for India, citing increasing aggregate demand and a rise in rural non-food spending as key drivers.

This optimistic forecast contrasts with a fragile global economic environment, where inflation concerns are reigniting financial stability risks. These insights were shared in the RBI’s latest “State of the Economy” article, published in its May Bulletin and led by Deputy Governor Michael Debabrata Patra.

 

Rural Demand and FMCG Growth

For the first time in two years, rural demand for fast-moving consumer goods (FMCG) has surpassed urban markets.

The recent quarter saw FMCG volume growth of 6.5%, with rural areas experiencing a robust 7.6% increase compared to 5.7% in urban regions. This growth is driven primarily by strong demand for home and personal care products.

 

Capital Flows and Investment Trends

The article highlights volatile capital flows as investors exhibit increased risk aversion. Despite this, optimism persists regarding India’s economic trajectory. Retained earnings have emerged as the primary funding source for listed private manufacturing companies in the latter half of 2023-24.

Additionally, companies have reported the highest growth in quarterly revenues for January-March 2024, both year-on-year and sequentially.

 

Inflation and Price Trends

While deflation in fuel prices and a historic low in core inflation have been noted, prices of key food items like vegetables, cereals, pulses, meat, and fish may keep headline inflation around 5% in the near term. These projections align with the April Monetary Policy Committee (MPC) resolution.

 

Economic Activity and Growth Forecast

The RBI’s May Bulletin forecasts a 7.5% growth for India in the first quarter of FY25, driven by rising aggregate demand and rural non-food spending. The Economic Activity Index (EAI), constructed from 27 high-frequency indicators, underscores this momentum, showing significant resilience against geopolitical supply chain disruptions.

High-frequency indicators for April 2024 reveal sustained domestic demand. Toll collections rose by 8.6% year-on-year, and automobile sales surged by 25.4% year-on-year, with record sales in passenger vehicles and strong growth in two-wheeler and three-wheeler segments.

 

Cautionary Note

The RBI clarifies that the views expressed in the Bulletin article are those of the authors and do not represent the official stance of the Reserve Bank of India.

As India anticipates releasing the quarterly GDP estimates for January-March 2024 and provisional national income estimates for the year 2023-24 on May 31, the economic indicators point towards continued robust growth.

The Indian economy recorded growth rates of 8.2%, 8.1%, and 8.4% in the June, September, and December quarters of 2023-24, respectively. “There is a growing optimism that India is on the cusp of a long-awaited economic take-off. Recent indicators are pointing to a quickening of the momentum of aggregate demand,” the article concludes, echoing the sentiments of Deputy Governor Michael Debabrata Patra and his team.