There is growing optimism that India is on the cusp of a long-awaited economic take-off and its gross domestic product (GDP) may grow close to 7.5% for the June quarter (Q1) of the current financial year, according to an article written by a Reserve Bank of India team led by Deputy Governor Michael Debabrata Patra.
The projection in the RBI’s May Bulletin released on Tuesday, was higher than the 7.1% estimated by the Monetary Policy Committee (MPC) in its statement on April 5. For the full FY25, the RBI has estimated GDP growth to be 7% compared with 7.6% in FY24.
“According to the economic activity index (EAI), activity rebounded in April and early estimates suggest that GDP growth for Q1:2024-25 is likely to remain close to 7.5%,” the authors of the article said.
The Indian economy has demonstrated marked resilience in the face of geopolitical headwinds imparting supply chain pressures, they said.
“Recent indicators are pointing to a quickening of the momentum of aggregate demand. Non-food spending is being pushed up by the green shoots of rural spending recovery,” they said.
A modest easing of headline inflation in the reading for April 2024 confirms the expectation that an uneven and lagged pace of alignment with the target is underway, they added.
Retail inflation fell to an 11-month low of 4.83% year-on-year in April from 4.85% in March, mainly due to a higher deflation in fuel and light and lower core inflation, data released on Monday by the statistics ministry showed.
The prices of vegetables, cereals, pulses, meat and fish in the food category may keep the headline elevated and closer to 5% in the near[1]term, in line with projections set out in the April MPC resolution in spite of deflation in fuel prices and further softening of core inflation to a new historic low.
“While statistical base effects may help pulling down the headline inflation in July and August, it is expected that September may see a reversal. It is only in the second half of the year that a durable alignment with the target may re-commence and sustain till numbers closer to the target are sighted during the course of 2025-26,” they said.
However, the authors said the outlook for the global economy is turning fragile as the descent of inflation is stalling, re-igniting risks to global financial stability. Capital flows have become volatile as nervous investors turn risk averse, they added.