India's growth story intact despite geopolitical tensions: RBI

The Reserve Bank of India (RBI), in its monthly bulletin for September 2024, says India’s growth story remains intact as its fundamental drivers -- consumption and investment demand -- gain momentum.

Prospects of private consumption, the mainstay of aggregate demand, look "bright" on improved agricultural outlook and rural demand, says the RBI.

"Real GDP growth for 2024-25 is projected at 7.2 per cent, with Q2 at 7.0 per cent; Q3 at 7.4 per cent; and Q4 at 7.4 per cent. Real GDP growth for Q1:2025-26 is projected at 7.3 per cent. The risks are evenly balanced," says an RBI article on 'State of the Economy'.

In spite of geopolitical tensions, India’s growth outlook is supported by robust domestic engines, says the report, adding that some high-frequency indicators have shown a "slackening" of momentum in Q2 FY25, partly due to unusually heavy rains in August and September.

The article, prepared by RBI’s Deputy Governor Michael Patra and other RBI officials, says that going forward, "uncertainty" surrounding global economic prospects could persist in the near term with heightened geopolitical tensions in the Middle East. "The future course of monetary policy the world over would, therefore have to take into account the risks to both growth and inflation from recent commodity price shocks."

The writers assert that in India, aggregate demand is poised to shrug off the temporary slowdown in momentum in the second quarter of 2024-25 as festival demand picks up pace and consumer confidence improves. "Rural demand is expected to get a boost from the improved agricultural outlook. Private investment should pick up steam in response to signs of a pick-up in consumption demand and rising business optimism."

In terms of aggregate supply, above-normal rainfall in the monsoon season augurs well for overall "kharif production' in the country as well as for reservoir storage, which brightens the rabi season outlook, say the economists.

In terms of liquidity, conditions remain in surplus mode. "The Reserve Bank will continue to be nimble and flexible in its liquidity management operations and will deploy an appropriate mix of instruments to modulate both frictional and durable liquidity to ensure that interest rates evolve in an orderly manner," they add.

On digital payments front, the RBI authors say transactions are expected to gain from strong tailwinds with the onset of the festive season, marked by 'mega e-commerce sales' and rising demand from smaller towns and cities. "Increasingly, consumers in Tier 3 to 6 cities are using digital payment services daily. These developments highlight the vast potential for driving adoption and ensuring sustained usage of digital payments at the grassroots level."