India's largest lender and RBI unite in sending warning signals on Economy

Sachin Pratap Singh The Daily Update TDU

India’s economy at the moment is not in great shape, and this is evident. Many people might say that global factors are a major reason why India’s economy is faltering, but let me tell you, domestic conditions are also not favorable, and there’s no doubt about this. In fact, as you can see, the country’s largest lender, the State Bank of India (SBI), and our central bank, the Reserve Bank of India (RBI), have joined forces to issue warning signals. Recently, a report by SBI was published, and you can see that India’s largest lender and RBI are united in sending these warning signals.

?The latest economic report by the State Bank of India reveals India’s GDP forecast for 2024–25. According to them, GDP growth is projected to be 6.3%, which has been significantly revised downward. Earlier, projections were around 7.5%, but gradually, every institution, whether it’s RBI, SBI, or others, has been lowering their GDP growth forecasts. The latest figure from RBI also suggests that GDP growth for 2024–25 could be around 6.6%.

Now, what’s the problem here? RBI had initially projected India’s GDP growth at 7.2% for 2024–25, but it has now been reduced to 6.6%. Similarly, SBI has also revised its forecast downward to 6.3%, even lower than RBI’s estimates. This clearly shows that both RBI and SBI are issuing warning signals about India’s economy.

Has this kind of revision happened before?

Yes, this is not unprecedented. For instance, in June, RBI projected GDP growth for 2024–25 at 7.2% during its Monetary Policy Committee meeting. But within just 5–6 months, this projection was reduced to 6.6% in December. Similarly, during the financial years 2021–22 and 2022–23, a consistent pattern of downward revisions in GDP forecasts was observed. According to SBI’s report, there was an average reduction of 0.9% in these years.

Why are GDP growth forecasts being reduced?

RBI cites both global economic challenges and domestic challenges as reasons. While the government often portrays a positive picture of India as one of the world’s fastest-growing economies, RBI has clearly stated that domestic activities have weakened, and inflation risks have increased. These factors contribute to the challenges faced by the economy.

However, RBI has also indicated that many of these issues, especially global economic pressures, might resolve by Q2 of 2024–25. There is a possibility that the numbers for the latest quarter (October-November-December) could show improvement, but the data from Q2 (July-August-September) was disappointing, with GDP growth dropping to 5.4%, much lower than expected.

Key Challenges:

1. Consumption ?: Urban middle-class consumption, which previously supported growth, has significantly slowed. People are spending less, especially on big-ticket items like cars, resulting in declining car sales since August.
2. Inflation and Wages: Inflation has risen, but wages have not kept pace, leading to reduced spending capacity.
3. Exports and Jobs: Job creation has been inadequate, affecting living standards and overall consumption.

Global Context: Global economic conditions are not favorable either. Central banks across the world, including the US Federal Reserve, have tightened monetary policies, reducing rate cuts from four to two for 2025, indicating a cautious approach toward economic recovery.

Despite the current slowdown, there are reasons to remain optimistic. The RBI expects certain challenges to ease by the end of the current fiscal quarter. Proactive measures by the government and policymakers can help steer the economy back on track. Investments in infrastructure, technology, and human capital can lay the foundation for long-term growth.

These factors collectively pose significant challenges to India’s goal of becoming the third-largest economy by 2030. Without addressing these issues, achieving this target will be difficult.