GDP to Grow at 6.6% in FY25: RBI

The Reserve Bank of India (RBI), in its December 2024 Financial Stability Report (FSR), projected India’s GDP growth at 6.6% for FY25, driven by a revival in rural consumption, increased government spending, and strong services exports. Despite a moderation in GDP growth to 6% in H1 FY25 from 8.2% in H1 FY24, the RBI highlighted India’s economic resilience, supported by sound macroeconomic fundamentals, improved asset quality in banks, and robust financial system indicators. Risks such as moderation in urban demand, global uncertainties, and protective trade policies were noted.

Key Economic Highlights

GDP Growth and Drivers: Real GDP growth is forecasted at 6.6% for FY25, aided by government investment, rural demand recovery, and a boost in services exports. Challenges include softness in industrial activity and global spillovers.
Inflation Trends: A bumper kharif harvest and strong rabi prospects are expected to ease foodgrain prices. However, extreme weather events and geopolitical tensions could disrupt inflation dynamics.

Banking Sector Insights

Decline in NPAs: The gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) hit a 12-year low of 2.6% in September 2024, while net NPAs dropped to 0.6%, showcasing improved asset quality.
Capital Strength: SCBs maintained strong capital buffers, with the CET1 ratio at 14%, exceeding the regulatory minimum of 8%.
Resilience Under Stress: Macro stress tests confirmed that SCBs, mutual funds, and clearing corporations possess adequate capital buffers to withstand adverse conditions.

Global and Domestic Stability

Trade and Financial System Resilience: Despite global economic challenges, India’s financial system remains stable. The ratio of international assets to liabilities improved to 76.2% in September 2024, indicating strengthened external accounts.
Geopolitical Risks: Protective trade policies and global fragmentation pose risks to India’s economic outlook, requiring cautious management of external and internal vulnerabilities.

Summary of the news