RBI Bulletin: India’s Growth Outlook Strong Amid Domestic Resilience and Geopolitical Tensions

India’s growth outlook remains strong, supported by robust domestic economic drivers, despite ongoing geopolitical tensions, according to the Reserve Bank of India’s (RBI) monthly bulletin published on Monday.

While several high-frequency indicators have shown some slackening of momentum in the second quarter of 2024-25, the slowdown is partly due to unique factors such as unusually heavy rains in August and September. However, the RBI highlighted that private investment is showing encouraging signs of recovery, and consumption spending is poised for a revival, particularly with the upcoming festival season.

Inflation Surge in September

Inflation, after staying below target for two months, surged in September. The spike was driven by a combination of an adverse statistical base effect and a resurgence in food prices. Despite these pressures, other economic indicators have remained resilient, contributing to a stable growth trajectory.

The RBI expects consumer spending to rise significantly, especially in small towns and lower-tier cities, as the festival season approaches. Although high prices may dampen some enthusiasm, many buyers are focusing on discounts, driving increased spending on wardrobe updates, electronics, home decor, and jewellery.

Packaged food companies have ramped up supply chains in anticipation of heightened demand in both urban and rural regions. While initial e-commerce sales have been modest, retailers are hopeful for a late-season push, with consumer spending expected to be around 25% higher than during the 2023 Dussehra and Diwali season.

Hiring Surge for Gig Workers

The festival season is also expected to spur a surge in the hiring of gig workers as companies prepare for increased demand.

Foreign portfolio investments (FPIs) in equities and debt were strong from June to September 2024, drawn by India’s growth prospects, a booming initial public offering (IPO) market, and India’s growing weight in global indices. Notably, India has led the global IPO market in 2024, with contributions from both small and medium enterprises (SMEs) and larger companies.

However, in October, FPIs turned net sellers, offloading Rs 3,734 crore worth of equities in India after five months of sustained buying. Despite this, several mega IPOs are lined up for Diwali, expected to keep the IPO market buoyant.