RBI’s Economic Activity Index Estimates Q3 GDP Growth At 6.3%

India’s GDP in the October-December quarter is expected to see a sequential rise from the previous quarter, according to the RBI.

India is poised to maintain its growth momentum as strong macroeconomic fundamentals impart resilience in the face of global headwinds, the central bank said in its bulletin for November.

The RBI’s economic activity index nowcasts GDP growth for Q3 FY24 at 6.3%, the bulletin said. The momentum of the change in GDP is sequentially expected to be higher in Q3, with festive demand remaining ebullient, the central bank said.

Investment demand appears to be resilient with the government’s infrastructure spending, an uptick in private capex, automation, digitalisation, and indigenisation providing a boost, it added.

Investment in the private sector is beginning to pick up as funds intended for capital expenditure raised by corporates through different channels—from banks/financial institutions, external commercial borrowings, and initial public offerings—during the first half of FY24 were 60% higher than during second half of FY23.

“We are not out of the woods yet and have miles to go, but readings of around 5% and 4.9% in September and October, respectively, are a welcome relief from the average of 6.7% in 2022-23 and 7.1% in July-August 2023,” the central bank said.

Meanwhile, the only risk to the RBI’s resolve to align headline inflation with the target of 4% is food inflation, it said. Several constituent prices are already firming up—onions, tomatoes, cereals, pulses and sugar—with the potential to disrupt the gains made in the last two months. “Accordingly, in the RBI, we are bracing up for upticks in the readings for November and December,” the bulletin said.

Early estimates of Kharif output, which would be incorporated into Q2 and Q3 GDP estimates, have been adversely impacted by the uneven spatio-temporal distribution of the south-west monsoon across all crops. A strong increase in Rabi sowing acreage in spite of lower reservoir levels and deficient north-east monsoon rainfall may, however, compensate and improve agricultural production for the year as a whole, it said.

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