RBI sees India growing 7% in FY25

The Indian economy — which is the fastest-growing large economy in the world — will in all likelihood grow by 7 per cent in FY25, said Reserve Bank of India (RBI) Governor Shaktikanta Das.

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If this GDP growth were to materialise, then it would be the fourth straight year when India’s GDP growth would have touched 7 per cent levels, said Das at a CII session on ‘High Growth, Low Risk: The India Story’ at Davos during the ongoing World Economic Forum Annual Meeting.

Das also said that retail inflation for next fiscal is expected to print at an average 4.5 per cent.

“Next year (2024-25) we will achieve GDP growth of 7 per cent. We are very optimistic about it. There is every likelihood we will achieve 7 per cent next year.

“India has been able to make a successful journey from crisis to confidence. Our growth momentum is good. However, there is no room for complacency. We are completely focused on achieving inflation target and supporting growth,” said Das.

He noted that India’s economic activity has sustained its strong momentum with both urban and rural demand supporting growth. The strong thrust by the government on capital expenditure coupled with signs of pick up in private investment and healthy aggregate demand conditions, are expected to lift the real GDP growth to 7 per cent in the next fiscal year of 2024-25, he said. Amid a challenging global macroeconomic environment, India presents a picture of growth and stability, he added.

India had recorded 9.1 per cent GDP growth in 2021-22; it was 7.2 per cent in 2022-23 and is likely to be 7.3 per cent this fiscal (NSO advance estimate). The RBI had officially pegged its GDP growth estimate for current fiscal at 7 percent. 

Noting that average CPI inflation in 2024-25 is expected to be 4.5 per cent, Das said that the central bank is very much committed to achieving the inflation target of 4%. 

“Given that our inflation tolerance band is 2-6 (4+/-2 percentage points), we don’t have a grim prospect of showing a failure in inflation targeting framework. Target is 4 percent and We are completely focused on achieving this 4 per cent target,” said Das.

Commenting on the global headwinds, Das noted that the recent heightened uncertainty has resulted in emerging market (EM) economies being at the receiving end of excessive volatility in US dollar and the bond yields. “In such a situation, the EM economies which have their own domestic challenges cannot be held hostage to international financial cycles. EM economies have to act to safeguard their own interests. Accordingly, the multilateral institutions could do well to take a more nuanced and balanced view of policy perspective of the EM economies”, he added.

 On the rising prowess of India’s Fintech sector, RBI Governor said that the Fintech ecosystem in India has tremendously improved, with the adoption rate of Fintech in India rising to 87 per cent, which is well above global average of 67 per cent. India’s Fintech market is projected to reach $150 billion by 2025, a significant leap from $50 billion in 2021, he added.

Das also highlighted that RBI through appropriate policy actions and liquidity measures have helped India to achieve a quick and sustained recovery from the pandemic. 

These actions have been supplemented by structural reforms in the areas of taxation, banking, ease of doing business, boosting physical & digital infrastructure announced by the government in the last few years, which together have boosted the medium- and long-term growth prospects of Indian economy, he said.

With the next monetary policy review meeting slated for first week of February, there is a likelihood that RBI may at the upcoming meeting revise up its growth forecast for current fiscal to 7.3 percent in line with government advance estimate, say economy watchers.