India’s real GDP to grow 7% in FY25; core inflation pegged at 4.5%: RBI

The RBI, in its annual report released today, says against the backdrop of subdued global economic activity and multiple headwinds, the Indian economy expanded in 2023-24 at a robust pace, with real GDP growth accelerating to 7.6% from 7% in the previous year – the third successive year of 7% or above growth. On the supply side, India's economic activity was supported by the manufacturing sector’s profitability and the sustained momentum in services.

The central bank has pegged the economic growth at 7% for FY25. "The Indian economy exhibited resilience during 2023-24, in the face of headwinds from protracted geopolitical tensions and volatile global financial markets…real GDP growth for 2024-25 is projected at 7.0 per cent with risks evenly balanced," the RBI said in its economic review.

India's real GDP growth was robust at 8.2% during 2023-24 (April-December). The acceleration in momentum in Q2 was sustained in Q3:2023-24.

The RBI says the agriculture and allied activities sector faced headwinds from the uneven and deficient southwest monsoon rainfall coinciding with strengthening El Nino conditions in FY24. "As per the SAE, the production of kharif and rabi foodgrains in 2023-24 was 1.3 per cent lower than the final estimates of the previous year."

The RBI says headline inflation in FY2023-24 moderated into the tolerance band after the monetary tightening, supply management measures and easing of input cost pressures. "Food inflation turned volatile due to recurrent supply shocks. On the other hand, core inflation eased," says the central bank.

The core inflation softened to a four-year low of 3.8% in December 2023. CPI inflation was projected at 5.4% for 2023-24 with Q4 at 5%. “Assuming a normal monsoon, CPI inflation for 2024-25 was projected at 4.5 per cent with Q1 at 5.0 per cent; Q2 at 4.0 per cent; Q3 at 4.6 per cent; and Q4 at 4.7 per cent, with risks evenly balanced.”

In FY24, India’s headline inflation rose from an intra-year low of 4.3 per cent in May 2023 to a peak of 7.4 per cent in July 2023. It eased to 4.9% in October but firmed up to 5.7% in December and then softened to 4.9% in March 2024, reflecting the volatility in food prices.

Besides, the RBI data shows the gross fiscal deficit (GFD) declined to 5.9% of GDP in 2023-24 (RE) from 6.4% of GDP in 2022-23. Consequently, India’s merchandise trade deficit narrowed to US$ 238.3 billion during 2023-24 from US$ 264.9 billion a year ago. With robust services exports and a steady flow of inward remittances, the CAD moderated to 1.2% of GDP during April-December 2023 vs 2.6% in the year-ago period.

Capital flows were also robust during 2023-24, attracted by buoyant economic growth and improving domestic macroeconomic fundamentals, says the apex bank. Net foreign portfolio investment (FPI) flows recorded a significant turnaround to US$ 41.6 billion in 2023-24, the second highest to 11.7% of GDP in 2023-24 (RE), their highest level since 2008-09, driven by income tax collections.

The RBI says the global economy turned out to be resilient in 2023 in spite of tightening financial conditions engendered by restrictive monetary policy stances, geopolitical tensions and geoeconomic fragmentation. Global GDP rose by 3.2% in 2023 vs 3.5% a year ago, supported by buoyancy in the US and major emerging markets and developing economies.