According to the article titled 'State of the Economy,' published in the RBI bulletin for November, the country's economy has shown resilience. This is due to festival-related consumer spending and a recovering agricultural sector.
A Reserve Bank of India (RBI), in an article, said that the slowdown seen in the second quarter of this financial year (2024-25), is now behind us. Private consumption is driving domestic demand again.
According to the article titled 'State of the Economy,' published in the RBI bulletin for November, the country's economy has shown resilience. This is due to festival-related consumer spending and a recovering agricultural sector.
However, it stressed that inflation must be brought down to enable India to reach its full potential.
"Private consumption has returned to driving domestic demand, albeit with mixed fortunes. "Festival spending has lit up real activity during the third quarter," said it
Michael Patra, the RBI's deputy governor, and other officials from central banks prepared this article. The RBI stated that the opinions expressed in the article were those of the authors, and not the institution.
The number of people visiting malls is down, but ecommerce has exploded. FMCG companies and automakers have increased their advertising budgets to boost demand.
The article stated that "Rural India has emerged as a goldmine for ecommerce companies during this festival season. This is expected to gain further momentum, with the sharp rise in kharif production and optimism surrounding rabi harvesting encouraging a record-breaking foodgrains goal for 2024-25."
Quick-commerce platforms (q-com), which are valued at more than $5 billion, and expected to reach $30 billion in 2029-30, are a vital resource for Direct-to Consumer (D2C), brands.
Retailers report a pickup in sales growth compared to the second quarter. This Diwali the e-two wheelers were a hit, but there has been a noticeable premiumisation, which is evident in luxury cars.
In the article, it was stated that the number of cities in India is increasing four-fold, and by 2025 half the population will be living in cities. This will increase the demand for urban housing.
The article stated that India's potential can be reconnected by reducing inflation.
In October, Consumer Price Index (CPI), compared with 5.5 percent in September, reached a new 14-month high at 6.21 percent.
Article said that the October CPI reading was a sticker shock following the September spike. This reinforced the RBI's warnings about complacency because of the sub-target results for July and august.
It said that despite the sharp rise in food prices, the core inflation rate has increased.
After the rise in edible oil prices, there are signs that inflation is increasing in processed food prices. Prices of household services such as domestic helpers/cooks are also rising due to the increased cost of living.
The article highlights that in this environment it is important to monitor the increase of input costs for goods and services, and how they are reflected in the selling price.
The inflation is already affecting the urban demand for consumption and corporate earnings and capital expenditure. The article warns that if inflation is allowed to continue unchecked it could undermine the prospects for the real economy and especially exports.
The article also stated that the domestic financial markets were experiencing corrections due to the relentless hardening in the US dollar, and that equities are under pressure because of persistent portfolio outflows. The article stated that the medium-term outlook is bullish, as the inherent strength of macro-fundamentals returns.
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