RBI maintains GDP growth at 7.2 pc; cautions on global challenges

New Delhi: Maintaining its stance on projected economic growth at 7.2 per cent for the fiscal 2024-25, the Reserve Bank of India (RBI) on Thursday said domestic economic activity continues to be resilient, but spillovers from protracted geopolitical tensions, volatility in international financial markets, and geoeconomic fragmentation, however, pose risks on the downside.

“On the supply side, steady progress in the south-west monsoon, higher cumulative kharif sowing, and improving reservoir levels augur well for the kharif output. The likelihood of La Niña conditions developing during the second half of the monsoon season is likely to have a bearing on agricultural production in 2024-25,” RBI Governor Shaktikanta Das said while announcing Monetary Policy.

The global economic outlook exhibits steady, though uneven, expansion. Manufacturing is indicating a slowdown, while service activity is holding up, Das said, adding that while the near-term outlook looks positive, there are significant challenges to the medium-term global growth outlook.

Looking ahead to the domestic economy, he said improved agricultural activity brightens the prospects of rural consumption, while sustained buoyancy in service activity would support urban consumption.

The healthy balance sheets of banks and corporations, thrust on capex by the government; and visible signs of pick up in private investment would drive fixed investment activity.

Taking all these factors into consideration, real GDP growth for 2024–25 is projected at 7.2 percent, with Q1 at 7.1 per cent; Q2 at 7.2 per cent; Q3 at 7.3 per cent; and Q4 at 7.2 per cent. Real GDP growth for Q1 of 2025-26 is projected at 7.2 per cent.

“The risks are evenly balanced," Das said, adding that it may be seen that we have slightly moderated the growth projection for Q1 of the current year in relation to the June 2024 projection. This is primarily due to updated information on certain high frequency indicators that show lower than anticipated corporate profitability, general government expenditure, and core industry output.

RBI mentioned that manufacturing activity continues to gain ground on the back of improving domestic demand. The index of industrial production (IIP) growth accelerated in May 2024. Purchasing managers’ index (PMI) for manufacturing at 58.1 in July remained elevated. Services sector maintained buoyancy, as evidenced by the available high frequency indicators.11 PMI services stood strong at 60.3 in July 2024, and are above 60 for seven consecutive months, indicating robust expansion.

While the near-term outlook looks positive, there are significant challenges to the medium-term global growth outlook. Demographic shifts, climate change, geopolitical tensions and fragmentations, rising public debt, and new technologies, such as artificial intelligence, pose new sets of challenges.

“A coherent policy approach in which monetary policy is complemented by other policies to manage the policy trade-offs will be crucial to deal with such multiple challenges,” RBI said.