Indian economy to grow at 7% in FY25: RBI Annual Report

The Reserve Bank of India (RBI) said in its latest annual report has said that Indian economy is projected to grow at 7 per cent with risks evenly balanced -- the fastest among major economies across the world -- in the current fiscal year (FY25), underpinned by a sustained strengthening of macroeconomic fundamentals. While the central bank expected headline inflation to moderate further, it flagged risks to food inflation saying that it remains vulnerable to supply-side shocks. It said the Indian economy expanded at a robust pace in 2023-24 (April 2023 to March 2024 financial year), with real GDP growth accelerating to 7.6 per cent from 7.0 per cent in the previous year -- the third consecutive year of 7 per cent or above growth pace. The economy showed resilience in FY24 (2023-24 fiscal) despite persistent headwinds.

It said the GDP growth is robust on the back of solid investment demand which is supported by healthy balance sheets of banks and corporates, the government's focus on capital expenditure and prudent monetary, regulatory and fiscal policies, and added that the Indian economy is navigating the drag from an adverse global macroeconomic and financial environment. Also, MSPs for both kharif and rabi seasons 2023-24 ensured a minimum return of 50 per cent over cost of production for all crops. It noted that Indian economy is well-placed to step up growth trajectory over the next decade in an environment of macroeconomic and financial stability. It highlighted that as headline inflation eases towards the target, it will spur consumption demand especially in rural areas. It further said the external sector's strength and buffers in the form of foreign exchange reserves will insulate domestic economic activity from global spillovers.

However, the report added that geopolitical tensions, geoeconomic fragmentation, global financial market volatility, international commodity price movements and erratic weather developments pose downside risks to the growth outlook and upside risks to the inflation outlook. According to RBI, the external sector's strength and buffers through foreign exchange reserves will insulate the local economic activity from global spillovers. The RBI also emphasised that the Indian economy would have to navigate challenges posed by rapid adoption of AI/ML (artificial intelligence/machine learning) technologies as well as recurrent climate shocks.