February 14, 2025
India's economic activity is gaining momentum, with high-frequency indicators pointing to sustained growth in H2 FY25
Rural demand is expected to rise, supported by a robust agricultural sector, while urban consumption is set to improve due to lower inflation and income tax relief
The Union Budget's focus on agriculture, MSMEs, investment, and exports aims to balance fiscal consolidation with economic expansion
India’s foreign direct investment (FDI) inflows grew by 20.6% year-on-year, reaching $62.5 billion between April and December 2024, reflecting strong investor confidence
India’s economic activity is showing sustained momentum, with key growth indicators suggesting a sequential pickup in the second half of fiscal year 2024-25, according to the Reserve Bank of India’s (RBI) February 2025 Bulletin. The report highlights improvements in vehicle sales, air traffic, steel consumption, and GST e-way bills, pointing to continued economic expansion.
The RBI noted that rural demand is expected to strengthen further, supported by a resilient agricultural sector. Urban demand is also poised for recovery, driven by easing inflation and an increase in disposable incomes following significant income tax relief announced in the Union Budget for 2025-26.
The central bank’s economic activity index (EAI), which tracks 27 high-frequency indicators, suggests that India’s growth momentum will remain steady. The global economic outlook, however, presents challenges, with moderate growth rates and diverging prospects across economies. Emerging market economies, including India, are facing external vulnerabilities due to a strong US dollar, which is leading to capital outflows and increasing risk premiums.
The strength of the US dollar, supported by resilience in the US economy and shifting trade policies, has contributed to foreign investor exits from emerging markets. This trend has added pressure on currencies, with the Indian rupee depreciating by 1.5% month-on-month in January 2025. Despite these pressures, the rupee remained relatively stable compared to other emerging market currencies during a period of heightened global volatility.
The RBI remains optimistic about India’s medium-term growth trajectory. The Union Budget’s strategy to drive four key engines of growth—agriculture, MSMEs, investment, and exports—is expected to support economic expansion while maintaining fiscal discipline. Capital expenditure remains a priority, with a clear roadmap for debt consolidation alongside measures to boost domestic consumption.
Global financial uncertainties have increased selling pressure from foreign portfolio investors (FPIs), resulting in net FPI outflows of US$6.7 billion in January 2025, primarily due to US$8.4 billion in equity outflows. This reflects growing investor caution amid global market turbulence.
However, India continues to attract strong foreign direct investment (FDI), with gross inward FDI rising by 20.6% year-on-year to $62.5 billion between April and December 2024. Despite external challenges, this increase signals sustained investor confidence in India’s economic potential.
The RBI also highlighted that domestic demand is expected to benefit from the recent repo rate cut by the Monetary Policy Committee (MPC) in February 2025, further supporting economic growth. As global financial markets navigate volatility, India’s economic resilience and policy measures remain key drivers in sustaining long-term momentum.
Source: CNBC