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The Indian economy is recovering from the slowdown in momentum witnessed in the July-September quarter, driven by strong festival activity and a sustained upswing in rural demand, according to a Reserve Bank of India (RBI) bulletin released on Tuesday.
However, the bulletin warned that populist sops announced by several states in their 2024-25 budgets may divert resources away from critical social and economic infrastructure development.
An article on the ‘State of the Economy’ in the December bulletin noted that the global economy continues to exhibit resilience with steady growth and moderating inflation.
“High frequency indicators (HFIs) for the third quarter of 2024-25 indicate that the Indian economy is recovering from the slowdown in momentum witnessed in Q2, driven by strong festival activity and a sustained upswing in rural demand,” it said.
The article further said the growth trajectory is poised to lift in the second half of 2024-25, driven mainly by resilient domestic private consumption demand.
“Supported by record level foodgrains production, rural demand, in particular, is gaining momentum. Sustained government spending on infrastructure is expected to further stimulate economic activity and investment,” the authors said.
Global headwinds, however, pose risks to the evolving outlook for growth and inflation, said the article authored by a team led by RBI Deputy Governor Michael Debabrata Patra.
India’s GDP growth slowed to a seven-quarter low of 5.4% during the July-September period of the current fiscal year.
On the fiscal position of the centre and states, the bulletin stated that they have budgetary room to boost capital expenditure in the second half of FY25, which would aid in sustaining the post pandemic gains in expenditure quality and support medium-term growth prospects.
However, several states have announced freebies, which may divert resources away from critical social and economic infrastructure development. These include the likes of Haryana, Punjab, Maharashtra, and Jharkhand, which have announced sops including free electricity to agriculture and households, free transport, allowances to unemployed youth and monetary assistance to women.
The RBI said the views expressed in the bulletin are of the authors and do not represent the views of the central bank.