India’s economy is showing signs of recovery in the second half of 2024-25, with key indicators suggesting a pick-up in momentum, according to the latest Reserve Bank of India (RBI) monthly bulletin.
The International Monetary Fund (IMF) and World Bank expect India to remain the fastest-growing major economy in 2025-26, with GDP growth estimates of 6.5% and 6.7%, respectively. However, global uncertainties and trade disruptions continue to pose challenges.
The Union Budget 2025-26 maintains a balance between fiscal consolidation and economic expansion, the RBI bulletin notes. The government’s focus on capital expenditure (Capex) and efforts to boost household incomes are key elements of this approach. The effective Capex-to-GDP ratio is expected to rise to 4.3% in 2025-26 from 4.1% in the previous fiscal year.
Retail inflation eased to a five-month low of 4.3% in January, mainly due to falling vegetable prices as winter crops arrived in the market. This decline offers some relief but doesn’t eliminate concerns over overall price trends.
Industrial activity improved in early 2024, as indicated by the Purchasing Managers’ Index (PMI) for January. Other indicators like tractor sales, fuel consumption, and air passenger traffic also suggest an overall recovery in economic activity.
Rural demand remains resilient, supported by rising farm incomes. Fast-moving consumer goods (FMCG) sales in rural areas grew by 9.9% in Q3 of 2024-25, up from 5.7% in the previous quarter. Urban demand is also recovering, with growth doubling from 2.6% in Q2 to 5% in Q3.
Listed non-financial companies saw better sales growth in Q3, leading to improved operating profit margins. Meanwhile, private sector investment intentions stayed stable, with project financing by banks and financial institutions nearing ₹1 lakh crore in the quarter. Capital raising through External Commercial Borrowings (ECBs) and Initial Public Offerings (IPOs) also saw an uptick.
The report highlights volatility in domestic equity markets, driven by selling pressure from Foreign Portfolio Investors (FPIs). The Indian rupee has weakened alongside other emerging market currencies due to a strong US dollar.
Additionally, global trade uncertainty is rising, with the US trade policy index reaching levels last seen during the US-China trade war in 2019. If restrictive trade policies persist, they could lead to long-term shifts in global trade patterns.