Reserve Bank publishes its Annual Report: 2024 – 2025.

The Reserve Bank of India on 29^th. May, 2025 have published its Annual Report for the FY 2024 – 2025. The Report constituting 318 pages was submitted to the Central Government in terms of Section 53(2) of the Reserve Bank of India Act, 1934.

CERTAIN TAKE AWAYS

PREFACE –

The global economic expansion steadily continued in 2024, although growth was uneven amidst geopolitical tensions, geoeconomics fragmentation, heightened trade tensions and elevated public debt. Global inflation moderated in 2024 on the back of softening commodity prices, easing supply conditions and the lagged impact of monetary tightening in 2022. The disinflationary process, however, remains varied across countries with persisting stickiness in services inflation in major advanced economies (AEs). Financial conditions broadly eased as major central banks pivoted towards an accommodative monetary policy stance by mid-2024. Yet, bouts of volatility in global financial markets were visible during the year due to the interplay of policy shifts, geopolitical developments and stretched valuations of technological stocks, among others. Merchandise trade rebounded gradually in spite of persisting geopolitical tensions and policy uncertainty. Capital flows to emerging market economies (EMEs) remained volatile owing to elevated geoeconomics and policy uncertainties.

Amidst the challenging global economic environment, Indian economy exhibited resilience during 2024-25, supported by robust macroeconomic fundamentals and proactive policy measures. Inflation eased and moved below the target by the end of the year. The financial sector remained resilient and robust on the back of healthier bank and nonbank balance sheets, improved asset quality and capital buffers that enabled double-digit credit growth. On fiscal front, the central government continued with its efforts towards fiscal consolidation, supported by buoyant tax revenues, while maintaining the thrust on expenditure quality. A modest current account deficit (CAD) and adequate forex reserves provided resilience to the external sector even as capital flows exhibited volatility.

The Rays of Hope sustains, and the global economy in 2025 is likely to grow, because not only it has touched below its historical average (2000-19) of 3.7%, but also below the growth of 3.3% in 2024, on account of heightened global trade protectionism, rising policy uncertainty and ongoing geopolitical tensions. Disinflationary path is expected to continue but at a slower pace with AEs likely to reach their targets earlier than EMEs. Accordingly, many central banks pivoted to an easing cycle, while remaining cautious of escalating trade tensions, lingering geopolitical uncertainties, global financial market volatility, and climate change risks. Policymakers face the daunting task of suitably calibrating monetary and fiscal policies to support growth, while safeguarding financial and macroeconomic stability.

Simultaneously, Indian economy is poised to sustain its position as the fastest growing major economy during 2025 – 2026, supported by pickup in private consumption, healthy balance sheets of banks and corporates, easing financial conditions and the government’s continued thrust on capital expenditure. The easing of supply chain pressures, softening of global commodity prices and higher agricultural production on the back of a likely above-normal south-west monsoon augur well for the inflation outlook in 2025-26. Financial markets may exhibit sporadic episodes of volatility triggered by turbulent global financial markets in the wake of heightened uncertainty regarding the evolution of trade tariff policies, among others. Export sector is also expected to encounter some headwinds from rising geopolitical tensions, inward-looking policies and risk of potential tariff-war among major economies. However, India’s participation in 14 free trade agreements (FTAs) and six preferential trade agreements (PTAs), along with the new trade deals under negotiation with the US, Oman, Peru and the European Union (EU) may support growth in trade. Resilient services exports and inward remittances are likely to cushion CAD, which would remain eminently manageable in 2025-26.

The Indian economy had remained resilient during 2024 – 2025, supported by robust macroeconomic fundamentals, proactive policy measures and sustained government capital expenditure:

• Real gross domestic product (GDP) growth moderated to 6.5% in 2024 – 2025.

• Growth in gross value added (GVA) in the agriculture and allied sector in 2024-25 stood at 4.6% as compared to 2.7% a year ago.

• Growth in industrial sector moderated to 4.3% in 2024-25.
• The services sector, with a share of 64.1% in GVA, remained the mainstay of aggregate supply with a growth of 7.5% in 2024-25.

• Headline inflation moderated to an average of 4.6% during 2024-25 from 5.4% in the last year.

• Food inflation remained elevated at 6.7% in 2024-25.

• Merchandise exports grew marginally by 0.1% in 2024-25 as against a contraction of 3.1% LY.

• Merchandise imports grew by 6.2% during this period as against a contraction of 5.3% LY.

• Merchandise trade deficit widened to US$ 282.8 billion during 2024-25 from US$ 241.1 billion LY.

• Net foreign direct investment (FDI) inflows stood at US$ 0.4 billion during 2024-25, lower than US$ 10.1 billion a year ago; whereas FPI recorded net inflows of US$ 1.7 billion during 2024-25 (US$ 41.6 billion a year ago).

• During the year, credit-to-deposit ratio of scheduled commercial banks (SCBs) marginally increased, as bank credit growth outpaced deposit growth. The gap between credit and deposit growth, however, narrowed, with banks continuing to increase their term deposit rates to mobilise deposits to bridge the funding gap.

VULNERABILITIES –

• India’s external debt to GDP ratio remained at 19.1% as at end December 2024 (18.5% as at end-March 2024), the lowest among emerging market peers. The share of short-term debt (residual maturity) in total external debt declined to 42.4% as at end-December 2024.

• The liquidity surplus moderated in Q3:2024-25 with average net absorption under the Liquidity Adjustment Facility (LAF) declining to ₹0.80 lakh crore from ₹1.27 lakh crore in the previous quarter. Except for a brief period, system liquidity remained in surplus during October -November on account of higher government spending, not withstanding a significant increase in CiC due to festival related demand in October and capital outflows in November. Consequently, the Reserve Bank conducted five main and 23 fine-tuning VRRR operations during October 1 – November 29, 2024. System liquidity turned into deficit during the second half of December on account of advance tax payments and capital outflows.

• Liquidity conditions remained in deficit in Q4:2024-25 due to capital outflows and currency outgo, with average net injection of ₹1.56 lakh crore under the LAF. In order to ease the liquidity stress and the resultant pressure on the weighted average call rate (WACR), the Reserve Bank started conducting daily Variable Repo Rate (VRR) auctions effective January 16, 2025 with reversal taking place on the next working day. During Q4:2024-25, the Reserve Bank conducted four main and 62 finetuning VRR auctions to inject liquidity.

With a view to ease the persistently tight liquidity conditions, the Reserve Bank undertook a slew of measures in Q4, which included: (i) injection of ₹1.83 lakh crore through three term VRR auctions of varying maturities conducted in February 2025; (ii) OMO purchase auctions of Government of India securities for an aggregate amount of ₹2.45 lakh crore; and (iii) USD/INR Buy/Sell swap auction of US$ 5 billion for a tenor of six months on January 31, 2025 and US$ 10 billion for a tenor of three years each on February 28, 2025 and March 24, 2025.

In addition, the Reserve Bank had purchased government securities amounting to ₹38,825 crore under the NDS-OM during the quarter that augmented durable liquidity.

• India’s overall balance of payments exhibits that Imports registered 5,52,767 Million US Dollars; while Exports registered 3,25,540 Million US Dollars, thus demonstrating a Deficit in the Trade Balance amounting to 2,27,227 Million US Dollars.

• The Gross Fiscal Deficit is Rs. 2473.00 Thousand Crore, which is 7.6% of GDP.

• The Total Foreign Direct Investment Inflows was recorded as 50.00 Billion US Dollars, in which the significant contributories are – Singapore with 15.00 Billion USD; Mauritius with 8.30 Billion USD; and United States with 5.50 Billion USD.

Team Maverick