The Reserve Bank of India (RBI) on Thursday retained its growth and inflation projections for the current fiscal year at 7.2 per cent and 4.5 per cent, respectively, amid expectations of a normal monsoon.
In its last bi-monthly monetary policy review in June, the RBI had projected real GDP growth and retail inflation at the same rates.
RBI Governor Shaktikanta Das, while announcing the bi-monthly monetary policy, highlighted that improved agricultural activity brightens the prospects of rural consumption. Meanwhile, sustained buoyancy in services activity is expected to support urban consumption.
"The healthy balance sheets of banks and corporates, government’s thrust on capex, and visible signs of a pick-up in private investment are set to drive fixed investment activity. Improving prospects of global trade are expected to aid external demand," Das stated.
However, he cautioned that spillovers from protracted geopolitical tensions, volatility in international financial markets, and geo-economic fragmentation pose downside risks.
Considering these factors, Das projected real GDP growth for 2024-25 at 7.2 per cent, with quarterly growth rates of 7.1 per cent in Q1, 7.2 per cent in Q2, 7.3 per cent in Q3, and 7.2 per cent in Q4. Real GDP growth for Q1 FY26 is also projected at 7.2 per cent, with risks evenly balanced.
"It may be seen that we have slightly moderated the growth projection for Q1 of the current year compared to the June 2024 projection. This adjustment is primarily due to updated information on certain high-frequency indicators which show lower than anticipated corporate profitability, general government expenditure, and core industries output," Das explained.
On the inflation front, Das indicated that a degree of relief in food inflation is expected due to the pick-up in the southwest monsoon, healthy progress in sowing, and buffer stocks of cereals remaining above norms. Additionally, global food prices showed signs of easing in July after increases since March 2024.
Assuming a normal monsoon and considering the 4.9 per cent inflation print in Q1, CPI inflation for 2024-25 is projected at 4.5 per cent, with quarterly projections of 4.4 per cent in Q2, 4.7 per cent in Q3, and 4.3 per cent in Q4. CPI inflation for Q1 FY26 is projected at 4.4 per cent, with risks evenly balanced.
Das further noted that the headline CPI inflation edged up to 5.1 per cent in June 2024 due to higher-than-expected food inflation. Fuel prices remained in deflation for the tenth consecutive month, and core inflation moderated to a historic low in May and June.
"The high food price momentum likely continued in July, although large favourable base effects may push headline inflation downwards during the month. The impact of revisions in milk prices and mobile tariffs needs to be monitored," he said.
Under the current monetary policy setting, Das asserted that inflation and growth are evolving in a balanced manner, and overall macroeconomic conditions remain stable.
"Growth remains resilient, inflation has been trending downward, and we have made progress in achieving price stability, but there is more distance to cover. The progress towards our goal of price stability has been uneven due to large and persistent supply side shocks, especially in food items," he said.
The RBI, therefore, needs to remain vigilant to ensure that inflation moves sustainably towards the target while supporting growth, Das concluded, adding that this approach would be net positive for sustained high growth.
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