Right time to create mass consumer demand and trigger investment boom, says RBI Bulletin

Ahead of the Union Budget presentation on February 1, the Reserve Bank of India’s January Bulletin made a strong case for providing a consumption boost, saying that this is the appropriate time to rekindle animal spirits and create mass consumer demand aimed at triggering an investment boom.

An article published in the latest RBI bulletin said that the National Statistics Office (NSO) estimates released on January 7, for 2024-25, confirm India’s position as the fastest-growing major economy. However, the growth of India’s gross domestic product (GDP) has moderated to 6.4%, after seeing three consecutive years of above 7% growth, it added.

"This slowdown reflects the effect of a host of unfavourable factors in H1:2024-25, such as the impact of localised excess rainfall on non-farm activity. Private capex is yet to show visible signs of pick-up and with growth in general government capital expenditure moderating too, gross fixed investment in GDP and manufacturing in gross value added emerged as the biggest drags on growth," it said.

The article titled 'State of the Economy' said that agriculture and related activities are performing reasonably on the back of a record kharif harvest. With higher rabi sowing, the rural economy fortunes in the country have witnessed notable improvement.

Headline inflation eased up for the second month straight in December, driven by a rich supply of fruits and vegetables in winter resulting in decreased prices.

"The time is apposite to rekindle the animal spirits, create mass consumer demand and trigger a boom in investment. One way to revive the animal spirits may be to provide a consumption boost," said the article authored by a team led by Michael Debabrata Patra, who demitted the office of RBI Deputy Governor earlier this month.

The 'State of the Economy' article added that there is a notable increase in high-frequency economic indicators in the second half of 2024-25, which supports the anticipated rise in real GDP growth for this period, as reflected in the initial advance estimates from the National Statistical Office (NSO).

"There are early indications that corporate India may post a much better revenue and earnings growth in the third quarter vis-à-vis that in the first half of 2024-25," it said.

Several brokerages expect the combined net profit of Nifty 50 companies to grow at its fastest rate in three quarters.

Moreover, banking, finance and insurance companies are expected to report better earnings. It is also anticipated that unlisted companies will outpace their listed counterparts with faster revenue growth.

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.