Spending one’s way out of recession, or slowdown, is a common idea in a market economy, where demand is the elixir of the economy and lack of demand a haunting apparition. Though India is not within miles of a slowdown, let alone recession, the RBI’s (Reserve Bank of India) “State of the Economy” report for the month of October attributed the slowdown to an excess of rains this year.
Fortunately, the central bank of the country has also mentioned that the current festive season would generate enough sales to nudge the indicators out of the slow lane. Incidentally, according to the projections of the RBI, Indian GDP would rise at the rate of 7.2% in FY25.
What are the indiactors of slowdown?
RBI detected a slackening of a few high-frequency indicators such as GST collections, automobile sales, growth in bank credit, general merchandise exports and manufacturing Purchasing Managers’ Index.
“Some high-frequency indicators have, however, shown a slackening of momentum in Q2FY25, partly attributable to idiosyncratic factors like unusually heavy rains in August and September, and Pitru Paksha,” said the report released on October 21.
Pinning hope on festive demand
“In India, aggregate demand is poised to shrug off the temporary slowdown in momentum in the second quarter of 2024-25 as festival demand picks up pace and consumer confidence improves,” the report added.
Significantly, while RBI is worried about signs of slackening, it is equally concerned about the impact of food inflation – especially vegetable inflation. Excessive rains seem have emerged as the villain of the piece in pushing retail or CPI-based inflation in September that jumped to 5.49% as opposed to 3.54% in July (a 59-month low) and 3.65% in August.
RBI’s stand on inflation verses growth
Speaking last week at the Bloomberg’s India Credit Forum, RBI governor Shaktikanta Das had said, “… rate cut at this stage will be very premature and can be very, very risky when your inflation is 5.5% and the next print is also expected to be high, you can’t be cutting your rate, more so if your growth is also doing well.”
One subtext of the entire position of RBI on inflation is that India is projected to achieve the highest rate of growth in the economy. It is a matter of speculation of what Das’s stand on inflation would be if the rate of GDP growth shows signs of creeping down.
The negative impact that excessive rains this year have wreaked on the economy could perhaps by annulled by open-fisted spending during the festive days, says the Reserve Bank of India. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
