RBI predicts rural economy will pick up, attract private investment

The Reserve Bank of India’s State of the Economy Report has suggested that rural economy will pick up at some point, and private investment, which is missing till now, will kick in.

According to the report by the Reserve Bank of India (RBI), rise in income is driving a resurgence in rural consumption, which renders impetus to demand. In turn, this will attract investment of the private sector.

The RBI report pointed out that headline inflation has moderated despite volatile markets, recession looming large over major economies and ongoing geopolitical aggression all over the world. 

“Headline inflation moderated from its spike in June to 3.5 per cent in July but this was primarily due to the downward statistical pull of base effects,” the report noted.

The report takes a positive stand while analysing private capital expenditure. In the months of April to June, or the first quarter of the fiscal year 2024-’25 (FY25), sanctioned projects cost Rs 1,01,433 crore. This was higher year on year, what with the first quarter of FY24 having registered projects worth Rs 97,745 crore, There was a surge in IPO funds raised to meet capital expenditures (capex), too, when compared year on year.

MONETARY POLICY CAUTION TO CURB FOOD INFLATION

Meanwhile, in related news, a report titled ‘Are Food Prices Spilling Over?’, authored by the RBI’s Deputy Governor Michael Debabrata Patra and others, has discussed why the nation’s monetary policy needs to exercise caution given the persistent food inflation scenario. The reason, the report said, is the food inflation may not temporary but have a far more damaging effect on overall general inflation.

“Monetary policy is the only active disinflationary agent in the economy. Therefore, if food price pressures persist and continue to spill over, a cautious monetary policy approach is warranted,” the report stated.

The report noted that food inflation has become rampant in the ongoing decade, and added that in 57 per cent of the months between June 2020 and June 2024, food inflation was at or more than 6 per cent. Six of the 12 food sub-groups witnessed inflation of 6 per cent and above over 50 per cent or more of the four-year tenure.