The slowdown observed in the Indian economy during the second quarter of 2024-25 appears to be behind us, with private consumption once again driving domestic demand. Festival spending has reignited real activity in Q3, according to the Reserve Bank of India’s (RBI) November bulletin.
The report highlights rural India as a key growth driver, particularly for e-commerce during the festive season. This momentum is expected to strengthen further, supported by a sharp rise in kharif crop output and optimism around rabi production. The government’s record foodgrain target for 2024-25 adds to the rural growth story.
The bulletin also notes increased advertising spends by FMCG and automobile companies aimed at reviving demand. Direct-to-consumer (D2C) brands are aggressively seeking funds to expand their presence, leveraging quick-commerce (q-com) platforms, an ecosystem currently valued at over $5 billion and projected to reach $30 billion by 2029-30.
Retailers are reporting improved sales growth compared to Q2. Electric two-wheelers saw strong demand during Diwali, and there is a clear trend toward premiumization, particularly in the luxury car segment. The report also emphasizes the rise of new urban centers, driven by an urban population expected to quadruple by 2025. With half of India’s population projected to live in cities, urban demand is poised for a significant boost.
On the downside, private investment remains lackluster, reflected in lower sequential investments in fixed and non-current assets during July-September 2024, attributed to subdued corporate earnings. However, moderation in staff cost growth and a rise in non-operating income have boosted net profits, excluding the underperforming oil and gas sector and the high-performing financial services sector.
The report underscores the need to tackle inflation to sustain growth. October’s CPI inflation reading exceeded the RBI’s upper tolerance band, driven by a sharp surge in food prices and an uptick in core inflation. This followed a “wake-up call” in September after subdued inflation readings in July and August. The RBI warned against complacency, stressing that high inflation could derail India’s growth potential.
(Inputs from IANS)