Central bank highlights rural revival, investment momentum, and repo rate transmission as key drivers of India’s economic resilience
Mumbai | Thursday, September 25, 2025 – India’s economy is poised for stronger growth in the second half of the current financial year (H2 FY25), supported by rising consumption, rural demand, and robust investment activity, according to the Reserve Bank of India (RBI). The central bank, in its latest economic assessment, projected that favorable monsoon conditions, improving household consumption, and the steady transmission of monetary easing would underpin this momentum despite a fragile global backdrop.
RBI’s Growth Outlook
The RBI emphasized that domestic factors would be the key drivers of growth in H2 FY25. While global headwinds remain significant, including geopolitical risks, sluggish external demand, and volatile commodity prices, India’s internal economic fundamentals are showing resilience.
“Household consumption is expected to strengthen further during the festive season, while rural demand is gaining traction following favorable rainfall and higher agricultural output,” the report noted. “Investment activity, aided by both government-led capex and private sector expansion, remains on an upward trajectory.”
The RBI’s projections suggest that GDP growth in the second half of FY25 will outperform the first, consolidating India’s position as the world’s fastest-growing major economy.
Transmission of Repo Rate Cuts
A central theme in the RBI’s outlook is the robust transmission of repo rate reductions into the broader economy. The report highlighted that interest rate cuts have flowed effectively across sectors:
- Housing Loans: Interest rates declined sharply, improving affordability and stimulating demand in the housing sector.
- Personal Loans: Excluding credit cards, personal loan rates fell, encouraging consumption spending.
- Corporate Borrowing: Major industries, particularly infrastructure and manufacturing, benefited from cheaper financing, enabling expansion.
According to RBI data, these reductions have led to stronger credit flows, improved liquidity conditions, and enhanced business confidence across the economy.
Rural Demand Revival
A major pillar of the positive outlook is the revival of rural consumption, which had shown signs of stress in earlier quarters. The RBI credited a favorable monsoon and better agricultural output for the turnaround.
Higher farm incomes are expected to boost demand for consumer goods, automobiles, and rural-focused services. The report added that companies in fast-moving consumer goods (FMCG), retail, and two-wheeler segments are likely to benefit significantly.
“Rural demand will play a crucial role in ensuring that growth is inclusive and broad-based, rather than concentrated only in urban markets,” the RBI said.
Sectoral Impact
Banking and Finance
The banking sector continues to report strong credit growth, supported by declining borrowing costs and stable asset quality. Non-performing assets (NPAs) remain contained, while profitability metrics show improvement.
Infrastructure and Manufacturing
Government expenditure on infrastructure – particularly in roads, energy, and urban development – is crowding in private investment. Manufacturing output has also picked up, aided by Production Linked Incentive (PLI) schemes and improving domestic demand.
Consumer and Retail
Festive season spending is projected to see a strong surge, with robust demand across electronics, apparel, automobiles, and FMCG categories. Rising disposable incomes in both urban and rural households will fuel this trend.
Agriculture
Agriculture continues to remain a critical growth enabler. Higher yields, thanks to a normal monsoon, are expected to push up rural purchasing power. This, in turn, will stimulate allied industries like fertilizers, tractors, and farm equipment.
Inflation and Stability
Inflationary pressures, a concern in FY24, have eased in FY25, according to the RBI. While food price volatility remains a risk, government interventions such as buffer stock releases and import adjustments have kept inflation within the target band.
Core inflation (excluding food and fuel) has also moderated, reflecting improved supply-side conditions and the cumulative impact of monetary tightening in previous quarters. The RBI noted that price stability has bolstered both consumer sentiment and investment confidence.
Global Risks Remain
While the domestic outlook is favorable, the RBI warned of several external challenges that could weigh on India’s growth:
- Geopolitical Tensions – Conflicts in key regions continue to disrupt trade flows and push up energy costs.
- Global Inflation – Persistent inflation in advanced economies could trigger further monetary tightening, impacting capital flows.
- Weak Export Demand – Sluggish recovery in developed economies poses risks to India’s export performance.
Nevertheless, India’s strong foreign exchange reserves, prudent fiscal policies, and resilient financial system provide significant buffers against these external risks, the central bank said.
Digital Push and Structural Reforms
The RBI also underlined the role of digital transformation in boosting growth. The rapid adoption of digital payments, coupled with financial inclusion initiatives, has improved efficiency and transparency across the economy.
India’s start-up ecosystem, alongside ongoing reforms to improve the ease of doing business, is expected to further support long-term growth momentum.
Experts’ Reactions
Economists welcomed the RBI’s assessment, noting that the outlook reflects cautious optimism backed by robust domestic fundamentals.
“India’s growth prospects remain strong due to domestic consumption and investment, even if external demand falters,” said an economist at a leading brokerage. “However, sustaining momentum will require continued reforms and export competitiveness.”
Market analysts also highlighted that festive season demand, coupled with improving rural consumption, will be critical in validating the RBI’s projections in the coming months.
The RBI’s projection for stronger growth and consumption in H2 FY25 underscores India’s resilience amid global uncertainty. With rural demand reviving, investment activity gaining momentum, and inflation remaining under control, the Indian economy is poised for a strong finish to the fiscal year.
Even as external risks persist, domestic fundamentals and proactive policy measures position India to sustain its growth trajectory. As the festive season begins, all eyes will be on whether rising consumption and investment will deliver the robust expansion that the RBI anticipates.
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