RBI Bulletin: India's growth outlook steady despite Q2 slowdown; festive season consumption set to surge

The Reserve Bank of India’s (RBI) October bulletin highlights a slowdown in economic growth for the July-September quarter of FY25, attributing this to factors like heavy rains in August and September. Despite this, the RBI remains optimistic about the near future, particularly with the festive season approaching, which is expected to boost consumption.

Q2 Growth and Projections

India’s GDP growth for Q2 FY25 is estimated at 6.8%, slightly below the RBI's earlier projection of 7%. This adjustment reflects a minor deceleration from the previous forecast of 7% made in October, which was already revised down from 7.2%. The slowdown is seen as temporary, influenced by heavy rainfall and traditional factors like Pitru Paksha.

Consumption Revival

With the Dussehra-Diwali season around the corner, there’s an anticipated revival in consumption, especially in smaller towns and lower-tier cities. Retailers are optimistic despite an underwhelming start to e-commerce sales, expecting a late-season push. Consumer spending during the festive season is predicted to be 25% higher than last year.

Economic Drivers

The bulletin underscores strong domestic drivers supporting India's growth, despite recent geopolitical tensions. Key indicators such as GST collections, automobile sales, bank credit growth, merchandise exports, and the manufacturing PMI have shown some slackening in Q2 FY25. However, the festive season is expected to rejuvenate these sectors.

E-Commerce and Consumer Behavior

E-commerce platforms are gearing up for increased demand, particularly in electronics, home décor, jewelry, and wardrobe updates. Quick commerce (Q-COMM) is reshaping consumer behavior, with more people opting for app-based purchases and fast delivery options.

Credit-Driven Consumption

There's a notable rise in credit-driven consumption in smaller towns and rural areas, with increased purchases of two-wheelers, smartphones, and electronics. This trend is supported by the expansion of consumer finance. Private banks, anticipating higher demand, are also ramping up hiring, boosting consumer confidence.

Inflation and Retail Credit

Inflation reached 5.5% in September due to rising food prices, but this pressure is expected to ease with the winter harvest. Retail credit growth has moderated as lenders take a cautious approach, especially with unsecured loans. Nevertheless, innovations in fintech continue to drive demand for digital credit.

Digital Transactions

India’s digitalization is on a growth trajectory, with a fivefold increase in registered fintech startups from 2,100 in 2021 to 10,200 in 2024. In Q1 FY25, fintech loan disbursals grew by 27% year-on-year, highlighting strong customer demand for digital credit.

Digital transactions also showed significant growth in September 2024, with the Real Time Gross Settlement (RTGS) reaching Rs 177.8 lakh crore. Retail payment modes like UPI, NEFT, and NACH posted double-digit growth year-on-year, with UPI transactions hitting a new high of 15 billion in the month.