The officials noted that there are some lead indications already of new capacity creation in a few industries and a pick-up in investment intentions. , Photo Credit: FRANCIS MASCARENHAS
The stimulus arising from gathering momentum in aggregate demand conditions is expected to reinvigorate the hitherto subdued participation of the private sector in total investment, said RBI staffers in an article in the latest monthly bulletin.
“Aggregate demand conditions are gathering momentum after some slack in the first quarter of 2024-25. Rural consumption spending on the back of growing incomes is beginning to drive volume growth in fast-moving consumer goods (FMCG), reflecting strengthening fundamentals.
“Receding of inflation pressures appear to be the most important metric in rural spending resurgence, driving a catchup with urban consumption volumes,” the staffers said in the article “State of the Economy”.
Green shoots
Reflecting these forces of turnaround, FMCG companies are starting to see green shoots of revival, portending a seismic shift in their markets as price stability sets in and expectations of a better monsoon as well as higher budgetary allocations for the rural economy push up volume growth.
The RBI officials opined that these factors which act as stimuli to demand are expected to reinvigorate the hitherto subdued participation of the private sector in total investment, a key accelerator of overall growth of the economy in view of higher levels of productivity and innovation.
The officials noted that there are some lead indications already of new capacity creation in a few industries and a pick-up in investment intentions.
Overall business sentiment has also shown an improvement as reflected in the rising business confidence index of the National Council of Applied Economic Research (NCAER), with an increase in the share of polled firms expecting overall economic conditions to improve in the next six months.
India Inc’s overseas fund raising up
The authors observed that overseas fundraising by Indian companies is experiencing a revival, driven by international investor interest, improving liquidity conditions and reduced hedging costs.
Several banks and non-banking financial companies (NBFCs) have also started diversifying funding sources by recourse to bond issuances overseas to cater to the upturn in demand for funding by corporates.
In particular, the offshore syndicated loan route is turning lucrative for corporates on expectations of an imminent rate-cutting cycle. While existing borrowers are making large-size issuances, the market is also seeing debut borrowers.
The officials said the private capex outlook remains upbeat, with the total cost of projects sanctioned/assisted during Q1:2024-25 of ₹ 1,01,433 crore exceeding the quarterly average total cost of projects sanctioned during 2023-24 (₹ 97,745 crore).
