India’s gross domestic product (GDP) will likely grow 6% in real terms in FY25, according to the “state of economy” report released by the Reserve Bank of India on Wednesday.
The latest projection is lower than 6.5% forecast in the October Monetary Policy Committee report, and comes after the upward revision of the likely growth rate for FY24 from 6.5% to 7%. After the latest review, GDP growth in FY24 is seen at 7.1%.
The GDP growth forecast was arrived under the assumption that global GDP growth could be 2.6% in FY24 and 2.1% in FY25. Also, global consumer price index (CPI) inflation is now seen at 5.5% in FY24 and 4% in FY25. The forecasts also assume unchanged RBI policy repo rate, and US Fed funds rate at 6.5% in FY24 and 5.5% in next financial year.
“The baseline forecast suggests that after a phase of high growth in the first half of 2023-24, the Indian economy is likely to undergo some moderation in subsequent quarters,” the RBI report said.
Lending, deposit growth
The state of economy report said that banks’ aggregate deposits increased by 12.2% YoY as of December 1, higher than 9.3% a year ago, whereas credit growth–excluding the impact of the HDFC twins merger–moderated from 17.5% a year ago to 16.4% as on December 1.
“Deposit growth (excluding the impact of the merger), which had spurted in the wake of withdrawal of Rs 2000 banknotes, has now stabilised. During June 2022-May 2023, the incremental credit-deposit ratio rose above 100 per cent, but has been declining thereafter reflecting the surge in deposit mobilisation,” it said.
The 250-bps repo rate hike by the RBI MPC, however, is still working its way through the credit markets, RBI noted. During May 2022 to October 2023, the weighted average lending rate (WALR) on fresh rupee loans increased by 199 basis points (bps), including an increase of 18 bps since April 2023.
“The WALR on outstanding rupee loans increased by 112 bps during May 2022 to October 2023. On the deposit side, the weighted average domestic term deposit rates (WADTDRs) on fresh and outstanding deposits increased by 228 bps and 172 bps, respectively, during the same period,” the report said.
It added that while the WADTDR on fresh deposits has declined in recent months, rates on outstanding term deposits continue to increase with the repricing of term deposits. The pass-through to WALR on fresh rupee loans and to WADTDR on fresh deposits was higher for public sector banks than for private banks, the report said, while the transmission to WALR on outstanding loans was higher for private banks.