Rural demand and private consumption have picked up; GDP is growing well: RBI Governor

RBI Governor Shaktikanta Das said the latest quarterly GDP data showed a boom in rural demand in the Indian economy as private consumption and investment rose.

Speaking at the annual banking conference FIBAC 2024 in Mumbai, Das stressed that the latest data from FMCG companies show that rural demand has recovered.

“Private consumption, the mainstay of overall demand with a share of nearly 56 per cent, grew at 7.4 per cent, in fact recovering from a very weak 4 per cent growth in the second half of last year. This confirms the revival of rural demand, with FMCG data showing that rural demand has picked up,” Das said.

On the 6.7 per cent GDP growth data in Q1, he/she said “the data actually shows that the fundamental growth drivers of the Indian economy are actually picking up; they are not slowing down”.

The Governor said that this momentum gives us confidence that India’s growth story remains intact.

he/she also pointed out that while private consumption accounts for 56 per cent, investment is another important factor in growth. It accounts for 35 per cent of GDP and has grown at a rate of 7.5 per cent in line with the recent momentum.

The Governor highlighted that more than 90 per cent of the Gross Domestic Product (GDP) growth has been as expected, with private consumption and investment witnessing good growth and the slowdown in Gross Domestic Product (GDP) is due to the reduction in Government expenditure on account of elections and Model Code of Conduct.

“More than 90 per cent of the GDP has grown in a strong phase and is in fact above 7 per cent, so when we talk about a slowdown in the GDP number to 6.7 per cent in the first quarter, we have to take note of that; we should not ignore it,” Das said.

The Governor also informed that as per the latest RBI data, banks’ credit to agriculture and allied activities has remained strong and has increased by 18.1 per cent over last year. Loans to industries have increased by 10.2 per cent in July this year as compared to last year. Loans to MSMEs within industry have also increased by 14.4 per cent over last year.

he/she also called upon the private sector to increase investment in their respective businesses.

On food inflation, Das said that with a good monsoon and good kharif sowing, “it looks like food inflation may be more benign during the year. However, we have to keep an eye on how the forces influencing inflation play out.”

The governor said the balance between inflation and growth is now in a good position. The best contribution of monetary policy to sustainable growth is to maintain price stability.

All key indicators of the financial sector have demonstrated the robust health of the sector. India is poised for a shift in its orbit, and the nation’s journey towards becoming an advanced economy is drawing strength from a unique mix of factors, including a young and dynamic population, a resilient and diverse economy, and strong democracy and a rich tradition of entrepreneurship and innovation.