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February 20, 2025 2:01 PM IST

India | World Bank | GDP | IMF | world’s fastest-growing economy | RBI bulletin

India set to remain world’s fastest-growing economy in 2025-26: RBI bulletin

India’s economy is expected to maintain its status as the fastest-growing major economy in 2025-26, supported by sustained growth momentum and strategic fiscal measures, according to the Reserve Bank of India’s (RBI) latest monthly bulletin.

Citing estimates from the International Monetary Fund (IMF) and the World Bank, the bulletin projects India’s GDP growth at 6.5% and 6.7%, respectively, for 2025-26. Despite global uncertainties, high-frequency indicators point to a sequential pick-up in economic activity during the second half of 2024-25, which is expected to continue moving forward.

Balanced Fiscal Approach and Capex Growth

The RBI report notes that the Union Budget 2025-26 has prudently balanced fiscal consolidation with growth objectives. It continues to focus on capital expenditure while implementing measures to boost household incomes and consumption. The effective capital expenditure-to-GDP ratio is projected to rise to 4.3% in 2025-26, up from 4.1% in the revised estimates for 2024-25.

Inflation Moderates, Industrial Activity Picks Up

Retail inflation eased to a five-month low of 4.3% in January, primarily due to a sharp decline in vegetable prices following the arrival of winter crops. Industrial activity also showed improvement, as reflected in the Purchasing Managers’ Index (PMI) for January.

Key indicators such as higher tractor sales, increased fuel consumption, and sustained growth in air passenger traffic suggest a recovery in economic momentum. The bulletin highlights that rural demand remains resilient, driven by rising farm incomes. Fast-Moving Consumer Goods (FMCG) sales in rural areas grew by 9.9% in Q3 of 2024-25, up from 5.7% in Q2. Urban demand also improved, with sales growth rising to 5% from 2.6% in the previous quarter.

Corporate Performance and Investment Outlook

Enterprise surveys conducted by the RBI indicate improved corporate performance. Listed non-government, non-financial companies reported accelerated sales growth in Q3, with higher operating profit margins reflecting this trend. Private sector investment intentions remained stable, with banks and financial institutions sanctioning projects worth nearly ₹1 lakh crore during the quarter. External Commercial Borrowings (ECBs) and Initial Public Offerings (IPOs) for capital expenditure also recorded an uptick.

External Challenges and Currency Depreciation

Global trade uncertainties and geopolitical tensions have impacted domestic equity markets. Selling pressure from Foreign Portfolio Investors (FPIs) has led to declines in benchmark and broader markets. The Indian rupee has depreciated in line with other emerging market currencies, influenced by the strength of the US dollar.

Despite these challenges, India’s strong macroeconomic fundamentals and improvements in external sector indicators have helped it navigate global uncertainties, according to the bulletin. However, the report warns that increased trade policy uncertainty in the United States, comparable to levels seen during the 2019 US-China trade war, could lead to long-term shifts in global trade patterns and upward pressure on consumer and business costs.

Global Economic Outlook

The global economy continues to grow at a moderate pace, though growth prospects vary across countries amid rapidly evolving political and technological landscapes. Financial markets remain cautious due to the slowing pace of disinflation and potential impacts of tariffs. Emerging market economies, including India, face selling pressure from FPIs and currency depreciation driven by a strong US dollar, the bulletin added.

(With inputs from IANS)

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Last updated on: 22nd February 2025