MUMBAI: Household consumption is poised to grow faster in the second quarter of the current financial year as headline inflation eases, but food price volatility remains a contingent risk, according to the August Bulletin of the Reserve Bank of India.
Amid global slowdown, domestic drivers in India — private consumption and gross fixed investment — were robust and net exports remained sequentially positive in their support to gross domestic product (GDP) growth in Q1FY25, it said.
In an article on state of the economy, the Bulletin noted that “global economic activity is slowing down while the pace of disinflation remains sluggish, provoking caution among monetary policy authorities.”
“Consumer price index (CPI) inflation came in below the Reserve Bank’s target for the second consecutive month in August, although in light of the recent experience, food price volatility remains a contingent risk,” it said.
The CPI inflation inched up marginally to 3.7% in August from 3.5% in July, largely on account of an uptick in food inflation. The RBI is targeting 4% inflation on a durable basis. Revival of rural demand is already taking hold, according to the article.
It said the demand for fast moving consumer goods (FMCG) is also accelerating as companies target older customers with healthy lifestyle products in response to rising longevity and affluence and younger ones with premiumisation. Yet another consumption booster is the ramping up of hiring by e-commerce majors ahead of the festival season, not just in the metros but in tier 2 and 3 cities as well. Logistics hiring is also rising to support increased transportation, warehousing and delivery activities.
India’s GDP growth expectedly slowed down in Q1FY25 relative to Q4FY24 to a five-quarter low of 6.7% from 7.8%. However, the gross value added (GVA) growth accelerated between these quarters to 6.8% from 6.3%.
On the expenditure side, the acceleration in the Private Final Consumption Expenditure (PFCE), to a seven-quarter high of 7.4% in Q1FY25 from 4% in Q4FY24. The Gross Fixed Capital Formation (GFCF) also accelerated to 7.5% in Q1FY25 from 6.5% in Q4FY24.
Source: The Financial Express
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