RBI Keeps Real GDP Growth Forecast Unchanged At 7.2% For FY25

Amidst the concerns of a global economic slowdown, the Reserve Bank of India (RBI) on Thursday maintained the real gross domestic product (GDP) growth forecast for the current fiscal year unchanged at 7.2 per cent. In its third bi-monthly committee meeting for FY24-25, RBI Governor Shaktikanta Das stated that the real GDP growth for 2024- 25 is projected at 7.2 per cent, with Q1 at 7.1 per cent; Q2 at 7.2 per cent; Q3 at 7.3 per cent; and Q4 at 7.2 per cent. 

He added that the spillovers from protracted geopolitical tensions, volatility in international financial markets and geoeconomic fragmentation, however, pose risks on the downside. “The risks are evenly balanced. It may be seen that we have slightly moderated the growth projection for Q1 of the current year in relation to the June 2024 projection," Das said.

In June, the Reserve Bank of India (RBI) revised the growth forecast for FY25 to 7.2 from 7 per cent. According to the official figures, the country has witnessed growth of over 7 per cent in the last three years. While terming the outlook for India's financial sector as bright, the Modi government's economic survey has revealed that the real GDP is expected to grow at 6.5 to 7 per cent in the financial year (FY) 2025 amid the ongoing geopolitical crisis and economic slowdown across the globe.

"The survey conservatively projects a real GDP growth of 6.5 to 7 per cent, with risks evenly balanced, cognizant of the fact that the market expectations are on the higher side," according to the document. Notably, the growth estimated by the survey is in line with the International Monetary Fund’s (IMF's) estimate of 7 per cent.

“India’s economic recovery is ongoing, and maintaining the current repo rate can help sustain momentum by ensuring that borrowing costs remain stable, supporting both consumer spending and business investments. Real GDP growth is projected at 7.2 per cent. With global economic conditions being uncertain, maintaining the repo rate provides stability and predictability in the financial markets,” said Narinder Wadhwa, Managing Director (MD) and CEO, SKI Capital.

In July, Moody's Ratings stated that the Indian economy is expected to grow at 6.8 per cent in the current financial year 2024-25, fuelled by increasing domestic and overseas demand that supports GDP growth in emerging markets (EM).

The global rating agency for the next financial year 2025-26 has pegged India's growth at 6.2 per cent. It also asserted that India benefited from infrastructure development, digitalisation and the rehabilitation of the financial system. India's GDP grew at a massive 8.4 per cent during the October-December quarter of the financial year 2023-24 and 7.8 per cent for Q4. Estimates released by the National Statistical Office (NSO) placed India's real gross domestic product (GDP) growth at 8.2 per cent in 2023-24. India's economy grew 7.2 per cent in 2022-23 and 8.7 per cent in 2021-22, respectively.

Controlling Inflation
The consumer price inflation forecast for FY25 was kept unchanged at 4.5 per cent, with the outlook for agriculture and rural economy looking bright. Also, this year's expectations of a normal monsoon forecast underpinned the inflation outlook. The consumer price inflation forecast for Q2 was revised upwards to 4.4 per cent from 3.8 per cent, Q3 was revised upwards to 4.7 per cent from 4.6 per cent and Q4 was revised downwards to 4.3 per cent from 4.5 per cent. The central bank expects Q1FY26 inflation at 4.4 per cent. 

The RBI Governor stated that a degree of relief in food inflation is expected from the pick-up in the southwest monsoon and healthy progress in sowing. Buffer stocks of cereals continue to be above the norms. Global food prices showed signs of easing in July, after registering increases since March 2024. 

He mentioned, "Assuming a normal monsoon, and taking into account the 4.9 per cent inflation print in Q1, CPI inflation for 2024-25 is projected at 4.5 per cent, with Q2 at 4.4 per cent; Q3 at 4.7 per cent; and Q4 at 4.3 per cent. 33 CPI inflation for Q1:2025-26 is projected at 4.4 per cent. The risks are evenly balanced.”

However, the central bank remains guarded as the trajectory of key rabi crops, particularly pulses and vegetables, needs to be closely monitored given the recent sharp upturn in prices. Wadhwa added, “While inflation is a concern, all across the world especially US, but recent data might show it within the RBI’s target range which is kept at 4.5 per cent. By keeping the repo rate steady, the RBI continued to balance inflation control without stifling economic growth.”

The Repo Rate
Notably, the central bank has decided to keep the repo rate unchanged at 6.5 per cent for the ninth straight time. Das said, “After a detailed assessment of the evolving macroeconomic and financial conditions and the overall outlook. It was decided by a majority of four members to keep the policy repo rate unchanged at 6.5 per cent.”

He added that the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent. The MPC also decided by a majority of 4 out of 6 members to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.

Umeshkumar Mehta, Chief Information Officer (CIO), SAMCO Mutual Fund said that RBI MPC is in wait-and-watch mode and has kept the interest rates unchanged, waiting for clues from the largest Central Bank of the world, the US Federal Reserve, before acting. 

Mehta added, "Though India’s position today is far more resilient on the economic front which could have allowed a slight rate reduction to test the water on inflation and exchange rates, but RBI has taken a safer bet and decided to wait for rate reduction by the third or the fourth quarter of this year.”

Meanwhile, Governor Das emphasised that the RBI remains vigilant regarding inflationary pressures and will take necessary actions to maintain price stability while supporting the country's economic recovery.

Abhishek Sharma

BW Reporters The author is a senior correspondent at BW Businessworld