The Reserve Bank of India (RBI) has retained its FY25 real GDP growth and retail inflation projections at 7 per cent and 4.5 per cent.

RBI said real GDP growth for 2024-25 is projected at 7 per cent (unchanged vis-a-vis February 2024 projection) with Q1 at 7.1 per cent (earlier projection: 7.2 per cent); Q2 at 6.9 per cent (6.8 per cent); Q3 at 7 per cent (unchanged); and Q4 also at 7 per cent (6.9 per cent), with the risks evenly balanced.

“Going forward, the outlook for agriculture and rural activity appears bright, with good rabi wheat crop and improved prospects of kharif crops, due to expected normal south-west monsoon. Strengthening of rural demand, improving employment conditions and informal sector activity, moderating inflationary pressures and sustained momentum in manufacturing and services sector should boost private consumption,” Governor Shaktikanta Das said.

Per RBI’s survey, consumer confidence one year ahead reached a new high. “The prospects of investment activity remain bright owing to upturn in the private capex cycle becoming steadily broad-based; persisting and robust government capital expenditure; healthy balance sheets of banks and corporates; rising capacity utilisation; and strengthening business optimism as reflected in our surveys,” Das said.

Improving global growth and trade prospects, coupled with our rising integration in global supply chains, are expected to propel external demand for goods and services, he added. The headwinds from protracted geopolitical tensions and increasing disruptions in trade routes, however, pose risks to the outlook.

Food price uncertainties

RBI said assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent (unchanged vis-a-vis February 2024 projection) with Q1 at 4.9 per cent (5 per cent); Q2 at 3.8 per cent (4.0 per cent); Q3 at 4.6 per cent (unchanged); and Q4 at 4.5 per cent (4.7 per cent). The risks are evenly balanced.

Das observed that food price uncertainties continue to weigh on the inflation trajectory going forward

“...The tight demand supply situation in certain categories of pulses and the production outcomes of key vegetables warrant close monitoring, given the forecast of above normal temperatures in the coming months. Frequent and overlapping adverse climate shocks pose key upside risks to the outlook on international and domestic food prices,” he said.

Manoranjan Sharma, Chief Economist, Infomerics Ratings, said: “Going forward, the policy rate cuts may happen in a gradual and calibrated manner from June 2024 onwards because of the downward trending inflation trajectory and the trade-off between growth and inflation. There is a distinct possibility of 75 basis points cut in the policy rate in FY 25.”