India's economic growth poised to rebound, need to carefully monitor food inflation: RBI bulletin

The economic growth in India is poised to recover on the back of growing domestic demand, although the persistently high food inflation is a cause for concern, the latest Reserve Bank of India (RBI) bulletin released on Friday, January 17, said.

India's economic growth is poised to rebound as domestic demand regains strength, though the stickiness in food inflation warrants careful monitoring, the RBI Bulletin said.

Diverged economic outlook across the globe

The ‘State of the Economy' piece published in the central bank’s January Bulletin added that the economic outlook for 2025 is uneven across countries:

• The US economy is expected to slow down.
• Weak-to-modest recoveries are expected in Europe and Japan.
• Emerging and developing countries could see moderate growth, and inflation is expected to decrease at a slower pace as compared to developed nations.
• In advanced economies, inflation is expected to ease down gradually.

"In India, there is a conducive quickening of high-frequency indicators of economic activity in the second half of 2024-25, bearing out the implicit pick-up in real GDP growth for this period in the annual first advance estimates of the NSO," it said.

The bulletin further said that while the headline inflation in the country eased for the second successive month in December, the stickiness in food inflation gives rise to the need for careful monitoring of second-order effects.

The article has been written by a team led by Michael Patra, the former RBI Deputy Governor whose term ended on January 15 this month.

"India's economic growth is poised to rebound as domestic demand regains strength. Rural demand continues to gain momentum, reflecting resilience in consumption, supported by brighter agricultural prospects," the article said.

Inflation in India

India’s inflation rate declined to 5.22% in December, a four-month low, as per data released on January 13. However, December was also the fourth month when inflation stayed above 5%.

Food inflation in the country in December fell below 9% for the first time in the last four months, decreasing to 8.4% as compared to 9% in November. Core inflation in the last month was similar to the November rate, remaining steady at 3.7%.

Public capital expenditure

A revival in public capex on infrastructure is expected to fuel growth in key sectors in the country. However, rising input cost pressures in the manufacturing sector, combined with weather-related requirements and global headwinds could pose risks to this outlook.

The central bank, however, said the views expressed in the Bulletin are of the authors and do not represent the views of the Reserve Bank of India.