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Informist, Monday, Aug 19, 2024

 

--RBI paper: Aggregate demand conditions gathering momentum in India

--CONTEXT: Comments from RBI staff paper on state of economy

--RBI paper: Rural consumption picking up on back of growing incomes

--RBI paper: Demand revival may reinvigorate subdued pvt sector capex

--RBI paper: Apr-Jun earnings show mfg cos' sales growth moderating

--RBI paper: Econ activity index projects Jul-Sep GDP growth at 7.2%

--RBI paper: Data suggests demand conditions remained firm in Jul 

 

NEW DELHI – At a time when several risks cast a shadow on the global economic prospects, the Indian economy remains strong with demand conditions improving on the back of a revival in rural consumption, a Reserve Bank of India staff paper has said. This pick-up in demand is expected to reinvigorate participation of the private sector in investment, which has been subdued for a while, and can become a key accelerator of overall growth of the economy, the paper said.

 

"Aggregate demand conditions are gathering momentum after some slack in the first quarter of 2024-25," the paper on the 'State of the Economy' in RBI's bulletin for August said. The views expressed in the paper, authored by RBI officials, including Deputy Governor Michael Patra, do not necessarily reflect those of the central bank.

 

"Rural consumption spending on the back of growing incomes is beginning to drive volume growth in fast moving consumer goods, reflecting strengthening fundamentals." Consumption demand was at a record low of 4.0% in 2023-24 (Apr-Mar), barring the pandemic-hit year of 2020-21. One of the biggest reasons behind this was the weak demand in the rural economy.

 

Rural consumption is improving mainly as incomes rise and inflation falls, the paper said. "Receding of inflation pressures appear to be the most important metric in rural spending resurgence, driving a catch-up with urban consumption volumes," it said.

 

Alongside rising incomes, rural savings are also improving, as reflected by the rising number and outstanding amounts of savings bank accounts, the paper said.

 

Fast-moving consumer goods companies are starting to see a revival in demand, leading to a "seismic shift" in their markets as price stability sets in and expectations of a better monsoon along with higher budgetary allocations for the rural economy push up volume growth, the paper said.

 

On the other hand, the financial results for Apr-Jun show that sales growth of manufacturing companies is moderating, the paper said.

 

The overall demand conditions remained firm last month, the paper said, adding that the central bank's economic activity index is projecting Jul-Sep GDP growth at 7.2%, the same as forecast by the Monetary Policy Committee earlier this month. The RBI expects the GDP to grow at 7.2% this financial year, as compared to 8.2% in 2023-24.

 

In the long-term, the Indian economy faces challenges such as geo-economic and geopolitical shifts, climate change and extreme weather events, new technologies creating unpredictability and unknown risks, the paper said.

 

In order to overcome the challenges, India will need a developmental strategy that balances energy security, access, affordability and sustainability; builds world-class manufacturing, logistics, research and development capabilities, and competitiveness, the paper said.

 

"It is only by overcoming these challenges and harnessing these opportunities that India can hope to break out of the middle-income trap alluded to earlier in the context of the World Bank's latest World Development Report by growing annually at a rate of 7-10% to strike out towards a better future," the central bank's staff said.

 

Earlier this month, the World Bank said that India faces serious hurdles that could keep it from becoming a high-income country in the next few decades. At the current pace, India will take another 75 years just to reach 25% of US per capita income, the multilateral body said.  End

 

Reported by Shubham Rana

Edited by Ashish Shirke

 

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