Retail inflation increased by 3.34% annually
in March, while it increased by 3.61% in February. It is worth mentioning that
retail inflation has come down to its lowest level in the last 67 months, while
it was at the level of 5.22% in December 2024. At the same time, it was at 5.1%
in January 2024. It is worth mentioning that after November 2021, retail
inflation has increased at the lowest pace in March 2025. Here, wholesale
inflation also declined and came down to 2.05% in March, while it was at the
level of 2.38% in February and was at the level of 4.31% in January.
The
price of food in the retail market increased by 2.69% in March 2025 compared to
March 2024, while the cost of food in the wholesale market increased by only
1.57%. Retail inflation is within the 2% to 6% inflation tolerance limit set by
the Reserve Bank of India. It has remained below 4% for the second consecutive
month, making it easier for the Reserve Bank of India to cut policy rates in
the proposed monetary review in June.
Inflation
plays a vital role in determining one's purchasing power. When inflation
increases, the prices of goods and services increase, which reduces a person's
purchasing power and decreases the demand for goods and services. Then, the
sale of various products decreases, their production decreases, the company
incurs losses, workers are laid off, employment generation decreases, etc. As a
result, economic activities slow down and the pace of development is hampered.
In such a situation, it would be correct to say that the pace of development
accelerates only when inflation decreases.
The
IMD's prediction of better-than-normal rainfall this year is a significant
development for the Indian economy. This forecast is expected to lead to better
crops, reducing farmers' dependence on irrigation and the overall cost of
farming. Currently, about 48.8% of India's total agricultural land is
irrigated, with the remaining 51.2% dependent on rain. The potential increase
in rainfall could significantly boost agricultural production, thereby
positively impacting the economy.
The
National Statistical Office (NSO) has projected the GDP growth rate to be 6.4 per
cent in its first advance estimate for the Gross Domestic Product (GDP) for the
financial year 2024-25, which is lower than the last three financial years. The
GDP growth rate in the previous financial year was 8.2%. At the same time, the
Reserve Bank of India has projected the GDP to grow at 6.6% during the
financial year 2024-25.
Despite
the recent slow pace of GDP growth, hope is on the horizon. The government's focus
on increasing investment, savings, and consumption in the budget is a promising
strategy. We can accelerate economic activities and development by boosting
these areas, bringing hope for a brighter financial future.
After
loan growth between 14% and 16% in the last two years, the overall credit
growth has slowed down for the past few months. In December 2024, credit growth
came down to 11.2%, the biggest reason for which was the high lending rate. Cheap
capital is not available from banks. Earlier, investors used to keep their
deposits in the bank, but today, in the hope of getting higher returns, they
are investing in the stock market, mutual funds, gold, bonds, etc., due to
which banks are facing a shortage of capital. It is worth noting that banks take
deposits from customers and give loans to people in needin the same amount, but
customers are currently avoiding depositing their money.
In
such an adverse situation, the central bank is the source of cheap capital for
banks. When the policy rates are cut, the Reserve Bank will give loans to banks
at cheaper rates, which they can lend to people in need at more affordable
rates, and borrowing will increase. Currently, banks are forced to give loans
at higher rates, and due to the availability of loans at higher rates, ordinary
people and business owners are avoiding taking out loans. Because of this,
companies are short of capital, which makes them unable to produce at full
capacity. Demand for products has also decreased. As a result, economic
activities have been disrupted, and the pace of development is not increasing.
After
the reduction in the repo rate in February, credit growth has picked up
slightly. In March 2025, loans grew at a rate of 11.10% as compared to the same
month last year, while loan growth was slow in February 2025. During this
period, loans given to industry registered an increase of 7.3%. At the same
time, personal loans registered a growth of 14%. It is worth noting that loan
growth in India averaged 11.83% from 2012 to 2025, which reached a high of
20.80% in December 2023 and a record low of 4.10% in March 2017.
When
we compare the Indian economy's growth rate with the global economy's growth
rate, we are proud. Our economy is significantly outpacing the worldwide level.
According to the Organisation for Economic Cooperation and Development (OECD),
the global GDP growth rate was 3.2% in 2024 and is projected to be 3.3% in
2025. In contrast, the IMF estimates the global economy to grow at a rate of
3.1% in 2024 and 3.2% in 2025.
The
Indian economy is not just better than that of the world's most powerful
country, the US, but it's also expected to remain strong in the coming years.
The growth rate in the US is estimated to be 2.7% during the financial year
2024 and 2.0% in the financial year 2025. This comparison underscores the
strength and resilience of the Indian economy.
With
the potential for cheaper loans, banks can lend at more affordable rates. This,
in turn, will encourage people to take loans, leading to a boost in both investment
and savings. The prospect of increased consumption and growth in economic
activities is on the horizon, bringing hope and encouragement for the future.
(Satish Singh is an Ahmedabad-based Senior Columnist. Views are
personal. Contact: 8294586892)
