The Reserve Bank of India (RBI) anticipates a resurgence in aggregate demand in the second half of the fiscal year 2024-25, supported by rising festival demand and stronger consumer confidence.
In its October bulletin, the central bank noted that rural demand is expected to benefit from improved agricultural prospects, and private investment could gain momentum as consumption strengthens and business optimism rises. The RBI said that the financial sector, with healthy balance sheets, is well-positioned to support productive investments, further encouraged by the government's continued emphasis on capital expenditure.
However, the RBI acknowledged that global uncertainties remain a significant risk. Heightened geopolitical tensions in the Middle East could disrupt the global economic outlook, pushing up commodity prices, particularly for crude oil and metals. This presents challenges for countries dependent on imports, potentially complicating the balance between growth and inflation.
Additionally, the global economic impact of China’s response to its recently announced stimulus measures remains uncertain, further complicating the outlook.
The RBI remains cautious about inflation, noting that although headline inflation is on a downward trend, the pace of disinflation may be slow and uneven. Food inflation dynamics will be crucial, especially as the country has experienced favorable monsoon rainfall and higher kharif sowing compared to the previous year. These factors brighten the outlook for agricultural production and the upcoming rabi season, though risks from excessive rainfall and global supply chain disruptions could still affect inflationary pressures.
