Indian economy is recovering from slowdown witnessed in July-September quarter: RBI

High frequency indicators for the third quarter of 2024- 25 (October-December) indicate that the Indian economy is recovering from the slowdown in momentum witnessed in July-September, driven by strong festival activity and a sustained upswing in rural demand, Reserve Bank of India (RBI) said on Tuesday.

In the monthly RBI bulletin released today, the RBI said that the prospects for agriculture and hence rural consumption are looking up with brisk expansion of rabi sowing. Headline CPI inflation also somewhat moderated in November to 5.5 per cent on the back of easing food prices.

The Indian economy grew by 5.4 per cent in real terms in the July-September quarter of the current financial year 2024-25. The quarterly growth was quite lower than RBI's forecast of 7 per cent. In the April-June quarter too, India's GDP grew at a slower pace than was estimated by its central bank.

Urban consumption had reportedly witnessed a slowdown as persistent inflation dampened purchasing power of urban poor.

For India, the GDP data for second quarter of 2024-25 and headline consumer price inflation have confirmed apprehensions in the November issue of the State of the Economy report of RBI, reprising the dilemma of a slowing growth-high inflation conundrum.

"As presciently pointed out, from the expenditure side, the major factor contributing to the decline in the growth rate of the economy is fixed capital formation. From the production side, the main concern is manufacturing," said the RBI report.

The RBI monthly report asserted that the erosion of purchasing power due to repeated inflation shocks and persisting price pressures is starkly reflected in weakening sales growth of listed non-financial non-government corporations.

Another headwind that is emerging is the slowing rate of nominal GDP, which RBI said could hinder fiscal spending, including on capex, to achieve budgetary deficit and debt targets.
RBI reiterated that if inflation is allowed to run unchecked, it can undermine the prospects of the real economy, especially industry and exports.

"The time to act is now to excoriate inflation and revive investment strongly, especially as the usual winter easing of food price is setting in and the prospects of private consumption and exports accelerating are getting brighter," the RBI suggested.

On the consumption front, FMCG companies have attributed the muted demand to urban sluggishness. But, they now believe that the slowdown has bottomed out and stabilising as they await an upward spiral.