India’s Economic Growth Forecasted at 7% for FY25 by RBI
The Reserve Bank of India (RBI) has recently released its annual report, forecasting an impressive growth rate of 7% for the Indian economy in the fiscal year 2025. This rate positions India as the fastest-growing major economy globally, a distinction attributed to the consistent strengthening of its macroeconomic fundamentals.
In its detailed analysis, the RBI anticipates a moderation in headline inflation, although it warns of potential vulnerabilities in food inflation due to supply-side shocks. Remarkably, the RBI’s balance sheet has expanded by 11.08% to reach ₹70.48 lakh crore (approximately USD 845 billion) as of March 31, 2024, showcasing a size that is nearly 2.5 times that of Pakistan’s GDP, which is close to USD 340 billion.
The Indian economy witnessed rapid expansion during the 2023-24 fiscal year, with real GDP growth accelerating to 7.6%. This marks the third consecutive year where growth has maintained a pace of 7% or above. According to the RBI, this growth is driven by robust investment demand, the healthy finance sheets of banks and corporations, governmental focus on capital expenditure, and the application of prudent monetary, regulatory, and fiscal policies. This culmination of factors has allowed the Indian economy to navigate through adverse global macroeconomic and financial conditions effectively.
The RBI’s report also highlights how the announcement of Minimum Support Prices (MSPs) for the kharif and rabi seasons of 2023-24 has guaranteed a minimum return of 50% over the cost of production for all crops. This policy is set to spur consumption demand, particularly in rural areas, as headline inflation moves closer to the target.
From a global perspective, the RBI notes the strength and resilience of India’s external sector, bolstered by considerable foreign exchange reserves that protect domestic economic activities from global spill-overs. However, it cautions against geopolitical tensions, geoeconomic fragmentation, global financial market volatility, and erratic weather patterns as potential risks to India’s economic growth and inflation outlook.
Regarding its finances, the RBI’s balance sheet for the fiscal year 2023 showed a substantial increase, standing at ₹63.44 lakh crore. With normalized finances post-pandemic, the balance sheet has risen to encompass 24.1% of India’s GDP as of March 2024. A significant increase in income by 17.04% in FY24 alongside a reduction in expenditure by 56.3% has enabled the RBI to transfer a surplus of Rs 2.11 lakh crore to the Central Government. An additional Rs 42,820 crore has been allocated towards the contingency fund in FY24.
In the financial sector, the report points to a 26% annual increase in unclaimed deposits with banks, amounting to Rs 78,213 crore by the end of March 2024. The RBI also addresses the rise in frauds within the banking sector but notes a decrease in the amount involved compared to previous years. In its commitment to enhancing payment security, the RBI is exploring the implementation of real-time payee name validation in compliance with the newly enacted ‘The Digital Personal Data Protection Act, 2023’.
The RBI’s annual report paints a positive outlook for the Indian economy, underlining the country’s potential to sustain its growth trajectory while navigating the challenges of an evolving global landscape and emerging technologies such as artificial intelligence and machine learning.
