India's economy shows resilience and stability, with gross domestic product (GDP) projected to grow by 6.6% in 2024-25. According to the Reserve Bank of India (RBI) report released on December 30, the growth is expected to be supported by a recovery in rural consumption, increased government spending and investment and stronger services exports.
The RBI published the December 2024 edition of its Financial Stability Report (FSR), which reflects the overall assessment of the Financial Stability and Development Council (FSDC) sub-committee on the resilience of India's financial system and potential risks to financial stability.
The report highlights that the health of scheduled commercial banks (SCBs) has strengthened with improved profitability, reduced non-performing assets (NPAs) and strong capital and liquidity buffers. Key indicators such as Return on Assets (RoA) and Return on Equity (RoE) have reached their highest levels in a decade while the gross NPA ratio has fallen to a multi-year low.
Additionally, the report notes that macro stress tests show that most SCBs have adequate capital buffers relative to regulatory minimums, even under adverse stress conditions. These tests also verify the resilience of mutual funds and clearing corporations.
On the economy, the FSR states that in the first half of 2024-25, year-on-year (YoY) real GDP growth slowed to 6% from 8.2% in H1 2023-24 and 8.1% in H2 2023-24. Despite this decline, the report states that structural growth drivers remain intact, with real GDP growth expected to recover in the second half of 2024-25, supported by strong domestic factors such as public consumption and investment, as well as continued growth. Services exports and favorable financial conditions.
On inflation, the report predicts that inflationary effects of a strong kharif harvest and rabi crop expectations will help lower foodgrain prices. However, it warns that the increasing frequency of extreme weather events poses further risks to the dynamics of food inflation.
Moreover, ongoing geopolitical tensions and geo-economic fragmentation may put upward pressure on global supply chains and commodity prices.
RBI has also given an update on India's International Investment Position (IIP) as on September 2024.
Key features of IIP at the end of September 2024:
- Q2: Net claims of non-residents in India during 2024-25 declined by $19.8 billion to $348.5 billion in September 2024.
- A rise in foreign financial assets of Indian residents ($66.5 billion) compared to India's foreign-owned assets ($46.7 billion) led to a decline in net claims of non-residents during the quarter.
- A $53.8 billion increase in reserve assets accounted for more than 80 percent of foreign financial assets in July-September 2024.
- Reserve assets had a 63 per cent share of India's total international financial assets in September 2024 (Table 2).
- Domestic portfolio investments ($16.5 billion) and loans ($15.4 billion) together accounted for more than two-thirds of the increase in overseas liabilities of Indian residents during the quarter.
- The variation in the exchange rate of the rupee against other currencies affected the change in liabilities when valued in terms of the US dollar.
- India's international assets to international liabilities ratio improved to 76.2 percent in September 2024 from 74.1 percent a quarter ago and 71.4 percent a year ago.