RBI MPC: GDP growth forecast retained at 7% for FY25

FY 25 CPI inflation seen at 4.5%; FY25 real GDP growth seen at 7%

The Reserve Bank of India's Monetary Policy Committee (MPC) on April 5  stuck to its FY25 GDP growth forecast of 7 percent, same as in the last policy review, as it held the key rates steady for the seventh time in a row.

“Taking all factors into consideration, the real GDP growth for the current financial year 2024-25, the real GDP growth for the fiscal is projected at 7 percent. The first quarter growth is estimated at 7.1 percent, Q2 at 6.9 percent and both Q3 and Q4 at 7 percent each. The risks are evenly balanced,” RBI Governor Shaktikanta Das said while sharing the outcome of the MPC meeting.

There are risks of trade deficit but prospects of investment activity remain bright which is likely to upturn the private capex cycle, Das said.

“The strong growth momentum, together with our GDP projections for 24-25 give the RBI the policy space to unwaveringly focus on price stability,” he said.

India's economy surprised with a spurt in GDP growth to 8.4 percent in the October-December quarter, beating estimates. The economy is expected to continue the growth momentum on the back of robust investments and a pick up in private consumption.

The government’s growth projection for FY24 is 7.6 percent, while the RBI  is more conservative at 7 percent.

In its previous meeting, the Monetary Policy Committee pegged the FY25 GDP growth at 7 percent.
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Investment

The prospects of investment activity remains bright which is going to upturn the private capex cycle with robust government capital expenditure and healthy balance sheets of banks and corporates. It will lead to a rise in capacity utilisation especially in the manufacturing sector, strengthening the business optimism, Das said.

Moderating inflationary pressures and sustained momentum in the manufacturing and services sector should boost private consumption.

“The domestic economic activity continues to expand at an accelerated pace supported by fixed investment and improving global environment,” the RBI governor said.

Risks
The external demand improved in February with exports registering double digit expansion. Trade deficit, however, widened in February as imports also accelerated.

Disruptions in trade pose risks to the overall outlook. However, improving global growth and trade prospects coupled with India's growing integration with global supply chains are expected to propel external demand for goods and services, he said.

The global economy has remained resilient with a stable outlook, as reflected in various high frequency indicators. Global trade is expected to grow faster in 2024, though weaker than its historical average, he added.

Rural and urban demand

Urban consumption has stayed buoyant, as evident from resilience in cement production together with strong growth in steel consumption, Das said.

The outlook for agriculture and rural activity appears right with good wage growth and improved prospects of crops due to expected normal southwest monsoon, which will strengthen rural demand and improve employment conditions and informal sector activity.

Services sector exhibited broad based buoyancy with all sectors within the services sector registering strong growth. The PMI services remained above 60 during February and March suggesting sustained expansion.

With rural demand catching up, consumption is expected to support economic growth in 2024-25, he added.