RBI sharply cuts GDP growth forecast to 6.6% for FY'25

New Delhi: The Reserve Bank of India (RBI) on Friday significantly lowered the growth projection for current fiscal year to 6.6 percent from 7.2 percent earlier and hiked the inflation forecast to 4.8 percent in view of slowdown in economic activity as well as stubborn food prices.

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India's GDP growth fell to a 7-quarter low of 5.4 percent in July-September period of current financial year 2024-25 as against RBI's own projection of 7 percent.

Terming this growth much lower-than-anticipated, RBI Governor Shaktikanta Das exuded confidence that high frequency indicators available so far suggest that the slowdown in domestic economic activity bottomed out in Q2:2024-25, and has since recovered, aided by strong festive demand and pick- up in rural activities.

Agricultural growth is supported by healthy kharif crop production, higher reservoir levels and better rabi sowing, he said, adding, industrial activity is expected to normalise and recover from the lows of the previous quarter.

"The end of the monsoon season and the expected pick-up in government capital expenditure may provide some impetus to cement and iron and steel sectors. Mining and electricity are also expected to normalise post the monsoon-related disruptions," Das said while announcing the outcome of the fifth bi-monthly Monetary Policy Committee meeting of this fiscal year.

On the demand side, he said, rural demand is trending upwards while urban demand shows some moderation on a high base.

"Government consumption is improving. Investment activity is also expected to improve. On the external front, merchandise exports expanded by 17.2 percent in October 2024, while services exports continue to post upbeat growth (22.3 percent in October)," he said.

Taking all these factors into consideration, he said, real GDP growth for 2024-25 is now projected at 6.6 percent, with Q3 at 6.8 percent; and Q4 at 7.2 percent.

"Real GDP growth for Q1:2025-26 is projected at 6.9 percent; and Q2 at 7.3 percent. The risks are evenly balanced," he said.

On inflation front, Das said, it increased sharply in September and October led by an unanticipated increase in food prices.

"Core inflation, though at subdued levels, also registered a pick-up in October. Fuel group remained in deflation for the 14th consecutive month in October. In the near term, despite some softening, lingering food price pressures are likely to keep headline inflation elevated in Q3," he said.

Going ahead, he said, a good rabi season would be critical to the softening of the food inflation pressures.

On the upside, the evolving trajectory of domestic edible oil prices, following the hike in import duties and rise in their global prices, need to be closely monitored, he said.

Manufacturing and services firms surveyed by the Reserve Bank point to firming up of input costs and selling prices in Q4 of FY2024-25, he said.

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