MUMBAI (Reuters)

India's growth trajectory is expected to pick up in the second half of 2024-25, driven by domestic private consumption and a sustained revival of rural demand, as noted by the central bank in its monthly bulletin released on Tuesday.

High-frequency indicators for the third quarter of 2024-25 indicate that the Indian economy is recovering from the slowdown in momentum witnessed in Q2, backed by strong festival activities and a sustained upswing in rural demand, according to the Reserve Bank of India (RBI) in an article titled 'State of the Economy'.

The prospects for agriculture and rural consumption are improving due to brisk expansion of rabi sowing. India's GDP growth rate unexpectedly fell to 5.4% in the July-September quarter, marking its slowest pace in seven quarters, while inflation in November was significantly above the RBI's medium-term target of 4%.

The RBI cautioned that unchecked inflation could undermine the real economy, particularly affecting industry and exports. Nevertheless, the typical winter easing of food prices is beginning, with brightening prospects for private consumption and exports.

Earlier this month, the RBI's Monetary Policy Committee maintained its key interest rate amid inflation concerns but reduced banks' cash reserve ratio for the first time in over four years, easing monetary conditions as economic growth slowed.

High prices are driving the demand slowdown in India, and aligning inflation with the central bank's 4% target is crucial for sustainable economic growth, as indicated in minutes from the RBI's latest policy meeting. Sustained government spending on infrastructure is anticipated to further stimulate economic activity and investment. However, global challenges pose risks to the developing outlook for growth and inflation.