Prioritise liquidity support over rate action

Despite high geopolitical tension and uncertainties in the global economy, India witnessed strong growth prints, moderating inflation, modest fiscal and current account deficits, decent interest from foreign institutional investors (FIIs), and a stable currency, till about a couple of months ago.

- SIDDHARTHA SANYAL

But, the scenario has changed rather rapidly since then.

With the shockingly low Q2 GDP growth of 5.4 per cent year-on-year (Y-o-Y) last week, growth during the first half of 2024-25 stands at 6 per cent. Thus, India's overall GDP growth in 2024-25 looks set to reach low-to-mid-6 per cent only, missing the RBI's projection of 7.2 per cent by miles. Private consumption, typically the mainstay of India's growth, decelerated in Q2 negating a hugely favourable base (Q2FY24: 2.6 per cent), in line with the softening urban consumer confidence revealed by the latest RBI survey.

The momentum in government capex is slower than last year as expected, while uptick in private capex is at best modest.

Contribution from net exports improved in the current reading, without which Q2 GDP growth could have been worse. Credit growth to industry has decelerated from 10.2 per cent in July 2024 to 8 per cent by October.