The slack in speed of economic activities observed in the second quarter of the current financial year is “behind us,” the Reserve Bank of India bulletin for November said on Wednesday. Private consumption is back to being the driver of domestic demand with festival spending lighting up real activity in Q3, an article on the state of the economy added, allaying concerns over the economic slowdown.
On the industrial front, manufacturing and construction are expected to sustain dynamism. The services sector is expected to sustain its growth momentum, robust job creation, and high consumer and business confidence, it said.
Despite pressures in the bond and equity markets from global uncertainty and fluctuating foreign portfolio investments, financial conditions are likely to remain accommodative as reflected in corporate bond issuances and FDI inflows, the bulletin added.
Domestic financial markets are seeing corrections with relentless hardening of the US dollar and equities being under pressure from persistent portfolio outflows.
The RBI’s assessment, however, included a word of caution, referring to the elevated level of uncertainty surrounding the world economic outlook. “Anxieties run high about the possibility of adverse swings in trade and fiscal policies,”it said.
Private consumption, the mainstay of India’s aggregate demand, appears to be on track for a strong improvement due to the favourable agricultural outlook and the pickup in rural demand. Sustained buoyancy in services would also support urban demand.
The bulletin also featured the speech of RBI governor Shaktikanta Das at the Macro Week 2024 organised by the Peterson Institute for International Economics (PIIE), where he said, “resilient growth” has given the central bank the space to focus on inflation so as to ensure its durable descent to the 4 % target. “The headline inflation trajectory is projected to sequentially moderate from the last quarter of this financial year. Unexpected weather events and worsening of geopolitical conflicts constitute major upside risks to the inflation outlook,” the governor wrote.
Headline consumer price index (CPI) inflation rose to a 14-month high of 6.2% in October, breaching supper tolerance band of the RBI, with a sharp surge in the momentum of food prices along with an increase in core inflation.
According to the bulletin, the Indian economy is exhibiting resilience, underpinned by festival-related consumption, and a recovering agriculture sector. Record production estimates for kharif foodgrains as well as promising rabi crop prospects augured well for farm income and rural demand, going forward,it added, even as many independent analysts remain sceptical of the rural recovery. Many have pointed out that the elevated food prices aren’t adequately reflected in mandi prices of commodities other than rice and wheat which are most purchased by the government at minimum support prices.
“In terms of institutional infrastructure, the adoption of digital crop surveys for accurate production estimation and the introduction of drones are set to bring long-term efficiencies and productivity gains to the sector by enabling the assessment of production conditions on a real-time basis and possibly in proactive supply management, the RBI bulletin said.
As for the global economy, it said the world economic activity remained resilient during Q42024 amidst fragile confidence and rising protectionism. It however cautioned that recent high frequency indicators suggest that global economic activity moderated a little during the fourth quarter of 2024 so far within a broadly unchanged outlook.