India on Brink of Economic Surge, Says RBI

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The Reserve Bank of India (RBI) reports that India is poised for a significant economic take-off, fueled by rising aggregate demand and increased non-food spending in rural areas. The global economic outlook is becoming fragile as inflation’s descent stalls, posing risks to global financial stability, the RBI stated in its monthly bulletin.

The bulletin article, led by Deputy Governor Michael Debabrata Patra, highlighted that capital flows have become volatile as risk-averse investors display nervousness. “There is growing optimism that India is on the cusp of a long-awaited economic take-off,” the article noted, citing recent indicators pointing to a quickening momentum in aggregate demand.

For the first time in at least two years, rural demand for fast-moving consumer goods (FMCG) has outpaced urban markets, with rural FMCG volume growth at 7.6% compared to urban growth at 5.7% in the last quarter. This surge is driven by robust demand for home and personal care products.

Regarding private investment, retained earnings remained the major source of funds for listed private manufacturing companies during the second half of 2023-24. Data from listed corporates indicates they closed the financial year 2023-24 with the highest growth in quarterly revenues in January-March 2024, both year-on-year and sequentially.

The article noted that prices of vegetables, cereals, pulses, meat, and fish might keep the headline inflation elevated and closer to 5% in the near term, as projected in the April Monetary Policy Committee (MPC) resolution, despite fuel price deflation and further softening of core inflation to a historic low.

The RBI clarified 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.

Growth Forecast for Q1 FY25

The RBI’s May Bulletin forecasts a 7.5% growth for India in the first quarter of FY25, driven by rising aggregate demand and non-food spending in the rural economy. The Indian economy has shown remarkable resilience amidst geopolitical headwinds impacting supply chains.

The Economic Activity Index (EAI) was constructed using a Dynamic Factor Model, extracting common trends from 27 high-frequency indicators of economic activity. EAI was scaled to 100 in February 2020 and 0 in April 2020, the peak of mobility restrictions.

The government will release the quarterly GDP estimates for January-March 2024 (Q4 2023-24) and provisional estimates of National Income for the year 2023-24 on May 31.

The Indian economy recorded growth rates of 8.2% in the June quarter, 8.1% in the September quarter, and 8.4% in the December quarter of 2023-24. High-frequency indicators for April 2024 show sustained momentum in domestic demand, with toll collections increasing by 8.6% year-on-year.

Automobile sales rose by 25.4% year-on-year in April 2024, driven by strong growth in two-wheelers and three-wheelers, while passenger vehicles recorded the highest-ever monthly sales.

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