RBI Governor: Slowdown in economic activity bottomed out in July-Sept

On the demand side, rural demand is trending upwards while urban demand shows some moderation on a high base, he said while unveiling the RBI’s monetary policy here. “Government consumption is improving and investment activity is also expected to improve.”

However, the RBI Monetary Policy Committee slashed the GDP growth forecast to 6.6 per cent from 7.2 per cent projected earlier.

Das said agricultural growth is supported by healthy kharif crop production, higher reservoir levels and better rabi sowing. “Industrial activity is expected to normalise and recover from the lows of the previous quarter. The end of the monsoon season and the expected pick up in government capital expenditure may provide some impetus to cement and iron and steel sectors,” Das said.

He said mining and electricity are also expected to normalise post the monsoon-related disruptions. The purchasing managers’ index (PMI) for manufacturing at 56.5 for November remained elevated.

“The services sector continues to grow at a strong pace. PMI services remained steady at 58.4 in November, indicating continued expansion,” Das said. “On the external front, merchandise exports expanded by 17.2 per cent in October 2024, while services exports continue to post upbeat growth (22.3 per cent in October),” he said.

Taking all these factors into consideration, real GDP growth for 2024-25 is now projected at 6.6 per cent, with Q3 at 6.8 per cent; and Q4 at 7.2 per cent. Real GDP growth for Q1 of 2025-26 is projected at 6.9 per cent and Q2 at 7.3 per cent, the RBI’s policy panel said on Friday.

He said the near-term inflation and growth outcomes in India have turned somewhat adverse since the October policy. “The medium-term prognosis on inflation suggests further alignment with the target, while growth is expected to pick up its momentum,” he said.

Das said persistent high inflation reduces the purchasing power of consumers and adversely affects both consumption and investment demand. The overall implication of these factors for growth is negative. Therefore, price stability is essential for sustained growth. “On the other hand, a growth slowdown – if it lingers beyond a point – may need policy support,” he said.

The Reserve Bank’s anti-inflationary monetary policy stance has been a crucial factor in bringing about a significant disinflation, he said. Going forward, as food price shocks wane, headline inflation is likely to ease and realign with the target as per our projections.