India's GDP Growth Shows Recovery Signs After Dip

India’s GDP growth, which dipped to 5.4 per cent in the July-September quarter, is showing signs of recovery in the October-December period, according to the Reserve Bank of India’s (RBI) State of the Economy report. The report highlights that “high-frequency indicators (HFIs) for the third quarter of 2024–25 indicate that the Indian economy is recovering from the slowdown in momentum witnessed in Q2, driven by strong festival activity and a sustained upswing in rural demand.”

The RBI’s assessment, authored by its staff including Deputy Governor Michael Patra, underscores that India’s growth is expected to pick up in the latter half of 2024-25, primarily driven by robust domestic private consumption. The report also noted that “supported by record-level foodgrain production, rural demand, in particular, is gaining momentum,” with sustained government spending on infrastructure expected to further bolster economic activity and investment.

India’s GDP growth is projected to reach 6.8 per cent in Q3 and 6.5 per cent in Q4 of the current financial year. In its December monetary policy review, the RBI revised its FY24 growth projection downwards to 6.8 per cent, from an earlier estimate of 7.2 per cent. However, the report also highlighted that global challenges pose potential risks to the country's growth and inflation outlook.

The RBI report stressed that the current moment is critical for addressing inflation and reviving investment, noting that “the time to act is now to excoriate inflation and revive investment strongly, especially as the usual winter easing of food prices is setting in and the prospects of private consumption and exports accelerating are getting brighter.”

The outlook for agriculture and rural consumption appears promising, with a large portion of the kharif harvest likely to be reflected in Q3 GDP estimates. Economic activity data for November shows a pick-up in momentum, with the economic activity index signaling a strong pace. The nowcast for Q3 GDP growth is pegged at 6.8 per cent.

Further bolstering the positive outlook, high-frequency indicators reveal that aggregate demand continued to expand in October and November 2024. E-way bills saw a 16.3 per cent year-on-year increase in volume terms in November, while toll collections recorded double-digit growth both in value and volume terms.

On the inflation front, headline inflation slowed to 5.5 per cent in November, down from 6.2 per cent in October. High-frequency food price data for December, as of December 19, indicated a decline in rice prices, although wheat and atta prices continued to rise. Prices of edible oils continued to face upward pressure, while pulses registered a broad-based decline. Among vegetables, onion and tomato prices fell, though potato prices remained stable.

The report also noted a shift in foreign portfolio investments, with foreign portfolio flows to domestic debt instruments turning positive in December 2024, after outflows in October and November. Net FPI outflows amounted to USD 2.4 billion in November, with net equity outflows of USD 2.7 billion and net debt inflows of USD 0.3 billion. However, FPI flows turned positive in December (as of December 18), with net inflows of USD 3.6 billion.

In sectoral performance, oil, gas, and consumable fuels, as well as automobile and auto components, saw the highest equity outflows in November, while information technology and financial services experienced the largest inflows. The report attributed the equity outflows from emerging market economies to rising global economic and financial uncertainties in November.

Also Read: India’s GDP Growth Slows To Two-Year Low At 5.4% In July-September