Economy shows resilience, GDP to grow 6.6% in FY25 on recovery in rural consumption: RBI report

The Indian economy is showing resilience and stability, with GDP expected to grow by 6.6% in 2024-25. This growth is expected to be supported by a recovery in rural consumption, increased government spending and investment, and robust services exports, according to a Reserve Bank of India (RBI) report released on December 30.

The Reserve Bank of India has published the December 2024 edition of the Financial Stability Report (FSR), which reflects the comprehensive assessment of the Subcommittee of the Financial Stability and Development Board (FSDC) on the resilience of India’s financial system and potential risks to financial stability.

The report highlights that the health of scheduled commercial banks has strengthened, with improved profitability, lower non-performing assets, and stronger capital and liquidity buffers. Key indicators such as return on assets (RoA) and return on equity (RoE) have reached their highest levels in a decade, while the ratio of total non-performing assets (NPA) has fallen to its lowest levels in several years.

In addition, the report notes that macro stress tests show that most central banks have adequate capital buffers relative to regulatory minimums, even under adverse stress conditions. These tests also confirm the resilience of mutual funds and clearinghouses.

Regarding the economy, the Financial Stability Report notes that in the first half of 2024-25, real GDP growth slowed year-on-year to 6% from 8.2% in the first half of 2023-24 and 8.1% in the second half of 2023-2020. 2024. Despite this slowdown, the report confirms that the underlying structural growth drivers remain sound, with real GDP growth expected to recover in the second half of 2024-2025, supported by stronger domestic factors such as public consumption and investment, as well as continued growth in advanced economies. . Services exports and favorable financial conditions.

On inflation, the report expects that the deflationary effects of a strong kharif season and promising prospects for the rabi crop will help cushion food grain prices. However, it also warns that the increasing frequency of extreme weather events continues to pose risks to food inflation dynamics.

Furthermore, ongoing geopolitical tensions and geo-economic fragmentation may put upward pressure on global supply chains and commodity prices.

The RBI also provided an update on India’s International Investment Position (IIP) as of September 2024.

Key features of the IIP at the end of September 2024:

• Net claims of non-residents on India fell by $19.8 billion during the second quarter of 2024-25 to $348.5 billion in September 2024.
• The significant rise in offshore financial assets of Indian residents ($66.5 billion) compared to foreign-owned assets in India ($46.7 billion) resulted in a decline in net claims of non-residents during the quarter.
• More than 80% of the increase in external financial assets during the period from July to September 2024 is due to an increase of $53.8 billion in reserve assets.
• The share of reserve assets was 63% of India’s total international financial assets in September 2024 (Table 2).
• The increase in onshore portfolio investments ($16.5 billion) and loans ($15.4 billion) together accounted for more than two-thirds of the increase in foreign liabilities of Indian residents during the quarter.
• The effect of variation in the rupee exchange rate against other currencies on the change in liabilities, when denominated in US dollars.
• India’s ratio of international assets to international liabilities improved to 76.2 percent in September 2024 from 74.1 percent in the previous quarter and 71.4 percent a year ago.