The Reserve Bank of India (RBI) has said that India’s economic growth is set to rise in the second half after the sharp, unexpected slowdown in the July-September quarter.
However, it cautioned that challenges on the global front that include geo-political tensions could hurt emerging markets with their currencies and equities vulnerable to sharp bouts of declines of the kind that were seen in 2024.
In an article describing the “State of the Economy” published in its December bulletin, the RBI said the real GDP growth rate had slumped to a seven-quarter low of 5.4 per cent in the second quarter of the current fiscal.
The November releases of estimates of real GDP or gross value added (GVA) for the quarter and headline consumer price inflation confirmed apprehensions expressed in the earlier November issue about the dilemma of a slowing growth-high inflation conundrum.
The RBI said the views expressed in the bulletin were those of its authors and do not represent the views of the central bank.
In its latest bulletin, the RBI added that from the expenditure side, the major factor contributing to the decline in the growth rate of the economy was fixed capital formation whereas, from the production side, the main concern was in the area of manufacturing.
However, it was optimistic about the road ahead.
“High frequency indicators (HFIs) for the third quarter of 2024-25 indicate that the Indian economy is recovering from the slowdown in momentum witnessed in the second quarter, driven by strong festival activity and a sustained upswing in rural demand. The prospects for agriculture and hence rural consumption are looking up with brisk expansion of rabi sowing,” the report said.
The surge in growth in the second half will be driven largely by resilient domestic private consumption demand.
The report, however, warned that global headwinds, posed risks to the evolving outlook for growth and inflation.
“Challenges, however, persist in the form of ongoing geopolitical tensions, concerns over growing protectionism and a large public debt overhang. These developments have adverse implications for emerging market economies (EMEs), with their currencies and equities vulnerable to the sharp bouts of declines seen in 2024 in a highly uncertain environment for trade and capital flows,” the report added.