India’s Economic Growth Set To Rebound, Food Inflation Remains Concern: RBI Report

India’s economic growth is expected to rebound as domestic demand strengthens, according to the latest Reserve Bank of India (RBI) Bulletin released on Friday.

The bulletin indicates that the economic recovery is gaining momentum, although persistent food inflation poses an ongoing challenge that requires careful attention.

Global Economic Trends For 2025

The State of the Economy article in the January Bulletin compares India’s economic outlook to global trends.

It notes that the 2025 economic outlook is divergent across countries. The US is experiencing a slowdown, while Europe and Japan are seeing weak-to-modest recoveries.

Emerging and developing economies are projected to have more moderate growth profiles, accompanied by gradual disinflation when compared to advanced economies.

Economic Indicators Point To Growth

In India, high-frequency economic indicators are showing signs of acceleration in the second half of 2024-25, signalling an increase in real GDP growth. These indicators align with the growth estimates from the National Statistical Office (NSO) in its first advance estimates for the period.

The RBI Bulletin emphasized, “In India, there is a conducive quickening of high-frequency indicators of economic activity in the second half of 2024-25, bearing out the implicit pick-up in real GDP growth for this period.”

While headline inflation eased for the second consecutive month in December, food inflation continues to remain sticky, which the RBI flagged as a concern.

The persistence of high food prices could lead to second-order effects on the broader economy, requiring close monitoring.

Rural Demand And Public Infrastructure Investment

The article highlights the positive momentum in rural demand, which is strengthening due to improved agricultural prospects. This boost in rural consumption is expected to support India’s economic recovery.

Additionally, a revival in public capital expenditure (capex) on infrastructure is likely to drive growth in key sectors.

The increase in infrastructure investment is seen as a crucial catalyst for stimulating economic activity across industries.

Risks To Economic Outlook

Despite the positive outlook, the RBI cautioned that rising input cost pressures in the manufacturing sector, coupled with weather-related challenges and global economic uncertainties, could pose risks to India’s economic trajectory.

These factors may dampen growth and require careful management in the coming months.

The bulletin was authored by a team led by Michael Patra, who recently stepped down from his position as RBI Deputy Governor. The RBI clarified that the views expressed in the bulletin reflect the opinions of the authors and do not necessarily represent the official stance of the Reserve Bank of India.

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