‘Some slackening of momentum however GDP could have risen 6.8% in Q2’

REVVING UP: India’s progress outlook is supported by sturdy home engines regardless of latest geopolitical tensions, the article says

India’s GDP is projected to develop 6.8% within the second quarter of 2024-25, marginally larger than the 6.7% uptick within the first quarter (Q1), as per an financial exercise index compiled by the Reserve Financial institution of India (RBI) primarily based on a variety of excessive frequency indicators that was cited by its officers in an article on Monday.

The article on the “State of the Financial system” within the central financial institution’s October Bulletin famous that whereas India’s progress outlook is supported by sturdy home engines regardless of latest geopolitical tensions, some excessive frequency indicators have proven a slackening of momentum in Q2. This slackening was partly attributable to idiosyncratic components like unusually heavy rains in August and September, and Pitru Paksha, the RBI officers led by Deputy Governor Michael Debabrata Patra mentioned within the article.

Among the indicators which have waned embrace items and providers tax (GST) collections, car gross sales, financial institution credit score progress, merchandise exports and the manufacturing buying managers’ index (PMI), the article indicated.
“The Indian financial system has exhibited marked resilience regardless of a sequential ebb in momentum within the second quarter of 2024-25 on account of a bunch of things…” the article mentioned, however pointed to a sequential enchancment in client perceptions concerning the present state of affairs and future expectations and continued optimism amongst trade gamers about future progress prospects. 
“Provide chain pressures eased in September, falling beneath historic common ranges, though they continue to be weak to geopolitical dangers which have escalated in October. Our financial exercise index (EAI) 26, primarily based on a variety of excessive frequency indicators, initiatives GDP progress at 6.8% in Q2:2024-25,” the article concluded.

“Wanting forward, non-public funding is exhibiting some encouraging indicators by way of lead indicators whereas consumption spending is shaping up for a pageant season revival,” the article mentioned, having pointed to a constructive outlook amongst producers about capability utilisation within the ensuing quarters. 

The article, nonetheless, flagged considerations round stretched valuations in Indian inventory markets and the uncertainty surrounding geopolitical conflicts within the Center East, which acquired mirrored within the pullback in key indices witnessed in October. “Markets are more likely to tread cautiously with an eye fixed on company earnings reviews for Q2FY25 and tendencies in international markets,” they added.

Inflation outlook

Inflation, which had stayed beneath the central financial institution’s median goal of 4% for 2 consecutive months by way of July and August, surged in September as an antagonistic statistical base impact was compounded by a resurgence in meals worth momentum, the article famous. Whereas the sharp decide up in retail inflation final month, to five.5%, was pushed by the meals group, they famous that core inflation additionally registered an uptick together with a narrowing of the deflation in gasoline costs.

“Meals worth pressures in respect of greens might end up to be transitory with sturdy kharif harvest arrivals, though the surge within the worth momentum of oils and fat can have second order results impacting general inflation by way of enter prices of fast paced client items (FMCGs),” the RBI officers averred. 

Meals worth information until October 17 point out a softening in costs of cereals and pulses (besides gram dal) however edible oils continued to harden after import duties had been hike 20 proportion factors in September, whereas onions and tomato costs have risen steeply.

Amid the heightened geopolitical tensions within the Center East, web importer nations face the pass-through threat of improve in commodity costs, particularly of crude oil and metals. “The longer term course of financial coverage the world over would, subsequently need to take under consideration the dangers to each progress and inflation from latest commodity worth shocks,” they mentioned.