The Indian economy is regaining its growth momentum driven by recovery in consumption demand and overall investment, according to the Reserve Bank of India bulletin for the month of February, published on Wednesday.
The economic activity index, constructed by extracting the common trend underlying 27 high-frequency indicators, indicates that "activity sustained its pace in January" and the GDP nowcast for March quarter is placed at 6.6%, the RBI bulletin said.
High frequency indicators point towards a "sequential pick-up in momentum of economic activity" during the second half of fiscal 2025, which is likely to sustain moving forward, it added.
The RBI is of the view that the Union Budget 2025-26 prudently balances fiscal consolidation and growth objectives by continued focus on capex alongside measures to boost household incomes and consumption.
The recent momentum seen in economic activity is poised to be sustained, the bulletin noted, while adding that strong rural demand is expected to receive a further fillip from the robust performance of the agriculture sector.
The urban demand—whose slowdown has affected economic growth and corporate earnings—is also poised for a recovery, the central bank said, as it pointed towards the decline in inflation as well as a boost to disposable incomes from the income tax relief announced in the Union Budget.
The Budget measures to fuel four engines of growth – agriculture, MSMEs, investment and exports – are expected to boost medium-term growth prospects of the Indian economy, as per the RBI bulletin.
The Reserve Bank also expects domestic demand to benefit from the repo rate cut by the Monetary Policy Committee. The benchmark lending rate was slashed by 25 basis points to 6.25% in the RBI MPC meeting held earlier this month.
The reduction in repo rate—the first in five years—came in the backdrop of retail inflation easing to 5.22% in December. This was followed by the inflation further receding to 4.31% in January, as per the data released on Feb. 12, after the MPC meeting.
Robust kharif production and better rabi sowing, coupled with higher reservoir levels and seasonal winter correction in vegetable prices, "augur well for food inflation going forward", the RBI bulletin stated. This assumes significance as food inflation has been the key driver of retail inflation.
While core inflation remains muted, uncertainty in global financial markets, volatility in energy prices and adverse weather events present upside risks to the inflation trajectory, the bulletin further added.
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