RBI Report Highlights Economic Recovery and Positive FPI Flows in December

India’s GDP growth, which slowed to 5.4% in the July–September quarter, is rebounding in the October–December period. According to the Reserve Bank of India’s (RBI) State of the Economy report, high-frequency indicators show signs of recovery, driven by strong festival activity and growing rural demand. The RBI anticipates GDP growth of 6.8% in Q3 and 6.5% in Q4 of the current financial year.

Growth Drivers

Domestic private consumption, particularly in rural areas, is expected to boost growth in the second half of 2024-25. The report highlights the increase in rural demand, supported by record foodgrain production and sustained government infrastructure spending, which is expected to stimulate economic activity further.

Inflation and Agricultural Outlook

Inflation showed signs of slowing down in November, with the rate dropping to 5.5% from 6.2% in October. In terms of food prices, rice prices fell, while wheat, atta, and edible oils continued to see upward pressures. However, the outlook for agriculture and rural consumption looks positive, with the kharif harvest likely contributing to GDP growth.

Positive FPI Flows in December

Foreign portfolio investments (FPIs) turned positive in December after outflows in the previous months. The net FPI inflow for December, as of December 18, stood at $3.6 billion. This shift followed a period of $2.4 billion in net outflows in November. While the oil, gas, and auto sectors saw the highest equity outflows, IT and financial services attracted the most inflows.

The RBI report indicates that India’s economy is recovering from the previous slowdown, with positive momentum expected to continue into the new year. While global uncertainties remain a concern, domestic demand, particularly in rural areas, is seen as a key driver for growth.

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