Mumbai, 7 June

Reserve Bank of India on Friday revised upwards the GDP growth projection for the current fiscal to 7.2 per cent from 7 per cent on rising private consumption and revival of demand in rural areas.

Unveiling the bi-monthly monetary policy, RBI Governor Shaktikanta Das said 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. "During 2024-25 so far, domestic economic activity has maintained resilience," he said, adding that manufacturing activity continues to gain ground on the back of strengthening domestic demand.

Also, the services sector maintained buoyancy, as evident in available high-frequency indicators. Later replying to a question if the economy was overheating, RBI deputy governor Michael Debabrata Patra said: "We are not seeing signs of overheating because, remember, that level of output had fallen very low during the pandemic and even these high rates of growth are enabling it to catch up with that level. So, no signs of overheating".

In his monetary policy statement, Governor Das said private consumption, the mainstay of aggregate demand, is recovering with steady discretionary spending in urban areas. The revival in rural demand is getting a fillip from improving farm sector activity, and investment activity continues to gain traction on the back of ongoing expansion in non-food bank credit.

He also said the forecast of above normal south-west monsoon by the India Meteorological Department (IMD) is expected to boost kharif production and replenish the reservoir levels. "Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.2 per cent with Q1 at 7.3 per cent, Q2 at 7.2 per cent, Q3 at 7.3 per cent, and Q4 at 7.2 per cent. The risks are evenly balanced," Das said.

He also emphasised that the healthy balance sheets of banks and corporates, the government's continued thrust on capex, high capacity utilisation, and business optimism augur well for investment activity. External demand should get a fillip from improving prospects of global trade, the governor said.

The developments relating to growth and inflation are unfolding as per "our expectations", he noted. When the projected GDP growth of 7.2 per cent for 2024-25 materialises, it will be the fourth consecutive year with growth at or above 7 per cent.

On global economic growth, Das said the growth is sustaining its momentum in 2024 and is likely to remain resilient, supported by a rebound in global trade. Also, global inflation is easing, but the final leg of this disinflation journey may be tough.

Central banks remain steadfast and data-dependent in their fight against inflation. Market expectations regarding the timing and pace of interest rate cuts are also changing with incoming data and central bank communication, the governor said. "There is a view that in matters of monetary policy, the Reserve Bank is guided by the principle of 'follow the Fed'.

"I would like to unambiguously state that while we do keep a watch on whether clouds are building up or clearing out in the distant horizon, we play the game according to the local weather and pitch conditions," Das said.

In other words, he said, "While we do consider the impact of monetary policy in advanced economies on Indian markets, our actions are primarily determined by domestic growth-inflation conditions and the outlook".