RBI retains FY25 GDP growth forecast at 7.2%

Mumbai: The Reserve Bank on Wednesday retained the growth projection for the current fiscal at 7.2 per cent on the back of robust consumption and investment momentum.

It, however, lowered the GDP estimate for the second quarter to 7 per cent from 7.2 per cent earlier. Real gross domestic product (GDP) also grew slower at 6.7 per cent in Q1:2024-25 from an earlier projection of 7.1 per cent.

Further, RBI revised upward growth forecast for the third and fourth quarters from 7.3 per cent and 7.2 per cent respectively, to 7.4 per cent.

In August policy also, RBI had projected the real GDP growth at 7.2 per cent for the fiscal.

RBI Governor Shaktikanta Das while announcing the bi-monthly monetary policy said India’s growth story remains intact as its fundamental drivers – consumption and investment demand – are gaining momentum.

"Prospects of private consumption, the mainstay of aggregate demand, look bright on the back of improved agricultural outlook and rural demand. Sustained buoyancy in services would also support urban demand. Government expenditure of the Centre and states is expected to pick up pace in line with the Budget Estimates," he said.

Investment activity would benefit from consumer and business optimism, the government’s continued thrust on capex and healthy balance sheets of banks and corporates.

"Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.2 per cent, with Q2 at 7 per cent; Q3 at 7.4 per cent; and Q4 at 7.4 per cent. Real GDP growth for Q1:2025-26 is projected at 7.3 per cent. The risks are evenly balanced," he said.

High frequency indicators available so far suggest that domestic economic activity continues to be steady, he said, adding, the main components from the supply side –agriculture, manufacturing and services – remain resilient.

Agricultural growth has been supported by above normal south-west monsoon rainfall and better kharif sowing, he added.

Stressing that the Indian economy presents a picture of stability and strength, he said the balance between inflation and growth is well-poised and India’s growth story remains intact.

Das further said, the prevailing and expected inflation-growth balance have created congenial conditions for a change in monetary policy stance to neutral.

"Even as there is greater confidence in navigating the last mile of disinflation, significant risks to inflation from adverse weather events, accentuating geopolitical conflicts and the very recent increase in certain commodity prices continue to stare at us. The adverse impact of these risks cannot be underestimated," he said.

Commenting on RBI's growth projection, Bankbazaar.com CEO Adhil Shetty said private consumption and investment have picked up, showing that people and businesses are spending again.

Government spending, however, has decreased, putting more pressure on the private sector to drive growth, he said.

Vara Technology founder Sunil Kanoria said: "The governor shifted the RBI's policy stance to neutral, signalling a potential change in approach. This decision reflects optimism fuelled by several key factors. Increased government spending on infrastructure, in line with budgetary expectations, points to further economic progress, which could help moderate headline inflation," Additionally, Kanoria said, forecasts of a good crop output are expected to contain food inflation, further easing price pressures.