SBI Research Report: SBI Research in its latest report has given important indications regarding the Indian economy and the upcoming monetary policy. In the report, GDP growth for the current financial year 2024-25 is expected to be 6-6.5%. Besides, it has also been said that in the upcoming monetary policy, it is important to focus on breathing new life into the slowing credit growth. Apart from slow credit growth, factors like low capital expenditure and inflation have also been included in the report as major challenges for the Indian economy in the coming days. The special thing is that this report of SBI Research has come just before the meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) to be held from 4 to 6 December. Let us see what other important things have been said in this report of SBI Research.
what areMajor reasons for decline in GDP growth
The report says that the GDP growth rate of the Indian economy in the second quarter of this financial year was only 5.4%, which is lower than expected. The main reason for this is the reduction in capital expenditure (Capex) of the central and state governments. According to the report, both the central and state governments have contributed in this. According to the report, in the first half of the financial year 2024-25, the central government spent only 37.3% of its annual budget, which is 10% less than in previous years. At the same time, out of 17 major states, the expenditure of only 5 states in the first half of the current financial year (H1 FY25) has been higher as compared to the same period of the last financial year (H1 FY24). According to the report, there is little hope of improvement in Capex even during the second half of the current financial year, hence GDP growth is also likely to remain in the same range.
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All-round decline in credit growth
According to the report, decline in credit growth has been seen in all sectors.
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Gross Bank Credit Position:According to the report, in the current financial year so far (till November 15, 2024), gross bank credit has increased by only Rs 9.3 lakh crore, whereas last year this growth was Rs 19.4 lakh crore.
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Impact on these sectors:The report states that credit growth in sectors like agriculture, industry, and services has been negative. A decline has also been recorded in personal loans and housing loans.
It has been said in the report that this decline in credit growth reflects the slowness in different sectors of the economy and the caution of banks.
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Rural and urban demand situation
It has been told in the report that due to government schemes, the condition of rural economy seems better than that of cities.
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Direct Benefit Transfer (DBT):Government subsidies have increased the purchasing power of rural families, due to which the demand and consumption of essential commodities has increased.
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Urban Demand: On the other hand, due to the way people’s old savings were wiped out during the Covid pandemic in urban areas, pressure on consumption still remains.
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The improvement in demand and consumption in rural areas is not able to completely compensate for the decline in urban demand.
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Inflation and Liquidity Management
According to the report, the Consumer Price Index (CPI) will remain above 5% till November 2024.
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Food Inflation:Despite the fall in the prices of vegetables and proteins, the level of food inflation in rural areas remains stable.
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Liquidity Management: The government is focusing on improving cash flow, but low-cost deposits of banks have declined, which may affect their profitability.
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What will be the challenge in monetary policy?
It has been said in the report of SBI Research that reviving credit growth i.e. breathing new life into it will be the biggest challenge in the upcoming monetary policy. For this, the Reserve Bank will have to recalibrate its liquidity related policy very carefully, paying special attention to liquidity management. Apart from this, it has also been said in the report that there is no possibility of RBI cutting the repo rate during the remaining months of the current financial year. However, this may be reconsidered in April 2025.
Important points of SBI research report
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GDP growth rate: Likely to be between 6-6.5%.
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Credit Growth: Decline in all sectors including agriculture, industry, and services.
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Rural Demand and Consumption: Positive impact of government schemes, but situation weak in cities.
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Inflation Rate: Chances of it remaining above 5% in November also.
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Monetary Policy:There is a need to focus on liquidity and credit growth, there is no possibility of interest rates decreasing.
