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There has been a structural break in the formation of GDP, with the first quarter GDP tending to record some loss of momentum relative to other quarters since the onset of the pandemic, according to the RBI’s latest monthly bulletin.
Hence, some moderation in relative to the growth of 7.8 per cent in Q4 (January–March): 2023–24 can be expected in the actual outturn when the National Statistical Office (NSO) releases its estimate at the end of August, per the article “State of the Economy” in the bulletin put together by RBI officials.
At an event hosted by a business channel on Tuesday, RBI Governor Shaktikanta Das said that the RBI is quite optimistic that the first quarter (Q1FY25) GDP growth print will be as per its projection of 7.3 per cent.
Silver lining
In the bulletin, RBI officials said: “A silver lining for the trajectory of GDP in 2024-25 is the halting descent of headline inflation in its May 2024 reading. The fifth consecutive month of decline, albeit grudging, opens up space for aggregate demand to benefit from price and cost reductions. The fact that the ongoing disinflation is being driven by the softening of the core component of consumer price index (CPI) inflation to a new low validates the stance of monetary policy.”
As long as food price pressures persist, however, the goal of aligning inflation with its target remains a work in progress.
Labour productivity
Referring to scientists warning that extreme summer heat has become a public health hazard, RBI officials observed that India is particularly vulnerable to losing labour productivity due to heatwaves as a large section of its workforce is engaged in outdoor work at this time of the year, as in agriculture, construction, and mining.
“It is estimated that every degree of rise in temperature above 27 degrees Celsius lowers labour productivity by 2-4 per cent. These effects are more pronounced in the northern part of the country than in the coastal peninsula,” they said.
The officials assessed that India loses around a quarter of its physical labour supply on very hot days. Added to output effects, this spills over into inflation and investments in construction and logistics.
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