Indian economy expected to expand 6.6% in FY25 due to a resurgence in demand in both urban and rural areas: RBI Report

Indian economy expected to expand 6.6% in FY25 due to a resurgence in demand in both urban and rural areas: RBI Report

According to a report released by the RBI on Monday, the Indian economy is showing resilience and stability, and the GDP is expected to grow 6.6% in 2024–2025 thanks to a rebound in rural consumption, an increase in government spending and investment, and robust services exports.

The Reserve Bank has published the Financial Stability Report (FSR) for December 2024, which includes the Sub-Committee of the Financial Stability and Development Council's (FSDC) collective assessment of the threats to financial stability and the resilience of the Indian financial system.

Scheduled commercial banks' (SCBs') health has been reinforced by their high profitability, falling non-performing assets, and sufficient capital and liquidity buffers. The gross non-performing asset (GNPA) ratio has dropped to a multi-year low, while return on equity (RoE) and return on assets (RoA) are at decadal highs, according to the research.

Additionally, it stated that even in the face of unfavorable stress situations, macro stress tests show that the majority of SCBs have sufficient capital buffers in relation to the statutory minimum threshold. The durability of clearing companies and mutual funds is also confirmed by stress tests.

Regarding the economy, FSR reported that real GDP growth (y-o-y) slowed to 6% in the first half of 2024–2025 from 8.2% and 8.1% growth in H1 and H2 of 2023–2024, respectively.

The structural growth factors are still in place notwithstanding this recent slowdown. According to the RBI, real GDP growth is anticipated to rebound in Q3 and Q4 of 2024–2025, driven mostly by internal factors such as investment and public consumption, robust service exports, and favorable financial conditions.

According to the report, foodgrain prices are anticipated to decline in the future due to the disinflationary impact of a big kharif harvest and the prospects for the rabi crop.

On the other hand, the dynamics of food inflation are still at danger due to the increasing frequency of catastrophic weather occurrences.

Global supply chains and commodities prices may also be subject to upward pressure from ongoing geopolitical conflicts and geoeconomic fragmentation.