More Stories

Informist, Wednesday, Nov. 20, 2024

 

Please click here to read all liners published on this story

--RBI paper: Economic Activity Index pegs Oct-Dec GDP growth at 7.6% 
--RBI paper:Econ Activity Index pegs Jul-Sept GDP growth 6.7% vs 6.8?rlier 
--RBI paper:High-frequency indicators show aggregate demand strengthened Oct 
--RBI paper: Promising kharif, rabi auger well for farm income, rural demand 
--RBI paper: India's services sector expected to sustain its growth momentum 
--RBI paper: Fincl conditions likely to remain accommodative 
--RBI paper: Manufacturing, construction are expected to sustain dynamism 
--RBI paper: Medium-term outlook remains bullish 
--RBI paper: Equities under pressure from persistent portfolio outflows 
--RBI paper: Slack in economy during Jul-Sept behind us 
--RBI paper: Festival spending lighting up real activity in Oct-Dec 
--RBI paper: Pvt consumption back to being driver of domestic demand 

 

NEW DELHI – Reserve Bank of India staff have pegged India's GDP growth in Oct-Dec at 7.6%, keeping it 20 basis points above the central bank's official projection. They also lowered their forecast for the Jul-Sept GDP growth print from their earlier estimate by 10 basis points to 6.7%. This is 30 bps lower than the RBI's official projection.

 

"Our economic activity index (EAI), based on a range of high frequency indicators, projects real GDP growth at 6.7% and 7.6% in Q2 and Q3:2024-25, respectively," the RBI's monthly State of the Economy article - which includes Deputy Governor Michael Patra as one of its co-authors - said Wednesday. The views expressed in the article do not reflect the central bank's official stance.

 

The lowering of Jul-Sept GDP growth view is aligned with the talks in many quarters about a slowdown in the Indian economy, with data over the last month and a half suggesting the growth momentum cooling down. The paper, however, said, "The slack in speed observed in the second quarter of 2024-25 is behind us as private consumption is back to being the driver of domestic demand with festival spending lighting up real activity in Oct-Dec."

 

Data released in August showed India's GDP growth fell to a five-quarter low of 6.7% in Apr-Jun, 40 basis points lower than the RBI's projection of 7.1%. The GDP growth data for Jul-Sep will be released on Nov. 29.

 

"The Indian economy is exhibiting resilience, underpinned by festival-related consumption, and a recovering agriculture sector," the central bank staff paper said. 

 

Festive spending may actually come in handy for the economy as government spending, which has fuelled growth in the post-pandemic years, has been lower this fiscal year so far. This has already impacted the GDP print for Apr-Jun. On the other hand, private consumption has been a pain point for the government, which seems to be reviving, as per the paper.

 

India's private consumption grew 7.4% in Apr-Jun, after hitting an all-time low of 4.0% in FY24, if the pandemic-riddled year of FY21 is discounted. "High-frequency indicators suggest that aggregate demand regained strength in October 2024, buoyed by festival season demand," it said. 

 

Consumption demand, especially from rural households, is under focus this year as weak rural demand in FY24 had dented consumption demand during the year. 

 

The paper said that the agriculture sector, which has been growing at a tepid pace, will gather momentum with a sharp increase in kharif output and optimism around rabi production aiding rural demand. "Record production estimates for kharif foodgrains as well as promising rabi crop prospects augur well for farm income and rural demand, going forward."

 

In Apr-Jun, agriculture sector growth stood at just 2.0% and in Jan-Mar, it was a paltry 0.6%. 

 

India's food grain output during the kharif season is estimated at a record 164.7 million tonnes due to good production of rice, jowar, and maize, according to the first advance estimate for 2024-25 (Jul-Jun) released by the government on Nov. 5. The food grain output was 155.8 million tonnes during the kharif season last year. The Ministry of Consumer Affairs, Food and Public Distribution has said preliminary reports showed the sowing of rabi crops such as chana, masur, urad, and moong, which was delayed initially across some states due to prolonged rains, is now recovering. 

 

Among the other sectors of growth, the staff paper said that the services sector is expected to sustain its growth momentum, robust job creation, and high consumer and business confidence. It added that available high frequency indicators for the services sector reflect traction in economic activity in September and October. 

 

In Apr-Jun, the services sector grew 7.2%, higher than 6.7% the previous quarter. On the industrial front, the RBI staff paper said that manufacturing and construction are expected to sustain dynamism going forward. Among the three broad sectors of the economy, industry grew the fastest at 8.3% in Apr-Jun, but it was a tad slower than the previous quarter, which stood at 8.4%. 

FINANCIAL MARKETS

While the RBI staff paper has shown optimism about economic growth, it flagged that domestic financial markets are seeing corrections with relentless hardening of the US dollar and equities being under pressure from persistent portfolio outflows.

 

The Indian currency fell 0.3% against the dollar last month due to strength in the dollar index and strong foreign portfolio outflows from domestic markets. In October, FPIs withdrew over $11 billion on a net basis from India. This is the largest monthly figure since March 2020, when the COVID-19 pandemic really hit India.

 

Dealers expect FPIs to keep pulling out money from Indian equities in the coming days, keeping the Indian currency under pressure. 

 

Despite pressures in the bond and equity markets from global uncertainty and fluctuating FPIs, financial conditions are likely to remain accommodative as reflected in corporate bond issuances and FDI inflows, the RBI staff paper said. 

 

Gross FDI into India in September was $5.98 billion, down from $8.61 billion in August, provisional data released by the RBI showed Wednesday. In September last year, gross FDI investment into India was $6.15 billion. Net FDI outflows in September were $3.06 billion, against net inflows of $631 million a year ago, according to the RBI data.

 

Irrespective of these downsides, the paper said that the medium-term outlook remains bullish as global turbulence subsides and the innate strength of the macro fundamentals reasserts itself.  End

 

US$1 = INR 84.42

 

Reported by Priyasmita Dutta

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.