Consumer, business confidence to drive growth: RBI governor Sanjay Malhotra
- The investment scenario in India is brighter as corporations step into 2025 with robust balance sheets and high profitability, Malhotra said. RBI remains focused on financial stability to support a higher growth path.
Prospects for the Indian economy are expected to improve in 2025 thanks to high consumer and business confidence, Reserve Bank of India (RBI) governor Sanjay Malhotra said in his foreword to the Financial Stability Report, which pegged the real GDP growth for the current fiscal year at 6.6%.
In the bi-annual report released on Monday, Malhotra said that despite global uncertainties, the Indian economy is expected to pick up in the second half of the current fiscal. “Notwithstanding the uncertainties shrouding the global macro-financial ethos as it unfolds, prospects for the Indian economy are expected to improve after the slowdown in the pace of economic activity in the first half of 2024-25,” said Malhotra, who took over as the central bank's 26th governor earlier this month.
“Consumer and business confidence for the year ahead remain high and the investment scenario is brighter as corporations step into 2025 with robust balance sheets and high profitability," he added.
In its December policy, RBI’s monetary policy committee (MPC) revised its GDP growth estimate for the current fiscal to 6.6% from its earlier expectation of 7%.
Malhotra said RBI remains focused on maintaining stability of financial institutions, and more broadly, systemic stability, to support a higher growth path.
“We continue to secure and anchor public trust and confidence to support India’s aspirational goals. We remain committed to developing a modern financial system that is customer-centric, technologically leveraged and financially inclusive,” he added.
Malhotra assured that stress test results reveal that capital levels of banks and non-banks remain well above the regulatory minimum even under adverse stress scenarios.
While declining inflation continues to brighten global prospects, Malhotra cautioned that the medium-term outlook for the global economy remains challenging with downside risks from geopolitical conflicts, sporadic financial market turmoil, extreme climate events and rising indebtedness. He also highlighted that stretched asset valuations, fragilities in the less regulated non-bank financial intermediaries, and threats from new and emerging technologies also add to the evolving uncertain outlook.
India recorded a slowdown in GDP growth to a seven-quarter low of 5.4% in the September quarter, the third consecutive quarter of declining growth. Real GDP growth in the first half moderated to 6% from 8.2% recorded in the corresponding period a year ago.
After the sharp slowdown in growth in the first half of the year, the Indian economy is exhibiting resilience and stability, and is expected to recover in the third and fourth quarters, the FSR noted.
“In this uncertain global macroeconomic and financial environment, the Indian economy is exhibiting resilience and stability. Real gross domestic product (GDP) is projected to grow at 6.6% in 2024-25 aided by revival in rural consumption, pickup in government consumption and investment and strong services exports,” said the report.
Flagging the issue of growth moderation in the first half, the finance ministry in its November Monthly Economic Review had raised concerns that the possibility that structural factors may also have contributed to the slowdown in the first half should not be ruled out. It noted that a combination of monetary policy stance and macroprudential measures by RBI may have contributed to the demand slowdown.
While the growth outlook looks positive, FSR cautioned that softness in industrial activity, especially in the manufacturing sector, moderation in urban demand, global spillovers and protective trade and industrial policies could pose risks to the outlook.
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First Published:30 Dec 2024, 07:24 PM IST
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