RBI August Bulletin: Central Bank Pegs GDP Growth At 7.2% In Q2 FY25

Economic activity, based on a range of high-frequency indicators, projects GDP growth of 7.2% in Q2 FY25, the RBI stated in its monthly bulletin for August 2024. This was as per its economic activity index. Aggregate demand conditions are gathering momentum with a revival in rural consumption on the back of growing incomes, the central bank said.

This stimulus to demand is expected to reinvigorate the hitherto subdued participation of the private sector in total investment, it added.

Rural savings are also on the rise, as evident in the rising number and outstanding amounts of savings bank accounts, the central bank said. The receding inflation pressures appear to be the most important metric in the rural spending resurgence, driving a catchup with urban consumption volumes.

Reflecting these forces of turnaround, FMCG companies are starting to see green shoots of revival, portending a seismic shift in their markets as price stability sets in and expectations of a better monsoon as well as higher budgetary allocations for the rural economy push up volume growth.

These factors, which act as stimuli to demand, are expected to reinvigorate the hitherto subdued participation of the private sector in total investment, a key accelerator of overall growth of the economy in view of higher levels of productivity and innovation, explained the RBI.

There are already some indications of new capacity creation in a few industries and a pick-up in investment intentions.

• Going forward, the low share of low-cost current and saving deposits in total deposits may curb the domestic fund-raising efforts of banks through high-cost funding options, due to a likely squeeze on banks’ net margins.

• This may also force banks to align loan growth more closely with deposit growth and normalise incremental credit-deposit ratios.

• In part, this behavioural shift may be induced by signs of stress in the unsecured loan segments, especially in personal loans and credit card portfolios.

• High-frequency food price data for August so far (up to the 12th) shows that the price of cereals, pulses and edible oil recorded a broad-based moderation.

• Among key vegetables, potato prices continued to edge up, while onion and tomato prices declined.