I read the RBI annual report so that you won’t have to! This episode of Indiafintech dives into the key pointers from the report.

The Reserve Bank of India's Annual Report 2024–25 provides an authoritative and nuanced view of the Indian economy. Against a backdrop of global uncertainty, India's macroeconomic performance stood out for its resilience and reform-led growth. Let’s distil the most important insights from the report into key themes for India’s financial ecosystem.

1. Economic Growth: A Resilient but Moderating Performance

India’s economy grew at 6.5% in 2024-25, slower than the 9.2% recorded in 2023-24. This moderation reflects global trade slowdowns, supply chain disruptions, and domestic agricultural challenges. Despite these headwinds, India’s economic engine remained robust, driven by strong domestic consumption and investment.

Key Highlights:

• Sectoral Breakdown:

  • Services led the charge, contributing 64.1% to the economy and growing at 7.5%. Construction (8.6% growth) and financial, real estate, and professional services (7.2% growth) were standout performers, fueled by urbanization and digital transformation.

  • Industry grew at a modest 4.3%, with manufacturing also at 4.3%, down from 12.3% in 2023-24, reflecting weaker global demand for Indian goods.

  • Agriculture maintained steady growth at 4.6%, supported by a foodgrain production of 330.9 million tonnes, slightly lower than the 332.3 million tonnes in 2023-24. Food stocks reached 74.9 million tonnes, bolstered by efficient procurement and distribution systems.

• Expenditure Drivers:

  • Private consumption surged by 7.6%, accounting for 56.7% of GDP, signalling robust consumer confidence despite inflationary pressures.

  • Investment (Gross Fixed Capital Formation) grew at 6.1%, contributing 33.4% to GDP, though slower than the 8.8% growth in 2023-24, reflecting cautious corporate spending.

  • Net exports weighed on growth, with a negative contribution of -1.3%, driven by a persistent trade deficit.

• Looking Ahead: India’s GDP growth is projected at 6.7% for 2025-26, supported by sustained domestic demand, government infrastructure spending, and a revival in rural consumption.

2. Inflation: Easing Pressures with Persistent Food Challenges

Inflation in 2024-25 moderated significantly, with the Consumer Price Index (CPI) averaging 4.6%, down from 5.4% in 2023-24, aligning closer to the central bank’s 4% target. However, persistent food price pressures remained a concern, highlighting supply-side vulnerabilities. The major issue here probably is the basket itself – While officials numbers show a slowdown in inflation, it doesn’t feel like so.

Key Highlights:

• CPI Components:

  • Food and Beverages inflation stood at 6.7%, driven by supply constraints in cereals, vegetables, and pulses, which continued to challenge household budgets.

  • Fuel and Light inflation turned negative at -2.5%, reflecting lower global energy prices and domestic subsidies.

  • Core Inflation (excluding food and fuel) eased to 3.5%, signaling reduced demand-side pressures.

• Wholesale Price Index (WPI) inflation averaged 2.3%, with food articles at 7.3%, underscoring agricultural supply chain bottlenecks.

• Rural vs. Urban Divide: Rural inflation was higher at 5.0% compared to 4.1% in urban areas, reflecting rural households’ greater exposure to food and fuel price volatility.

• Outlook: Inflation is expected to stabilize around 4.5% in 2025-26, contingent on a favorable monsoon and stable global commodity prices.

3. Money and Credit: Robust Expansion Fuels Growth

The financial sector saw sustained credit growth in 2024-25, reflecting strong economic activity and effective monetary policy management. The central bank balanced liquidity to support growth while keeping inflation in check.

Key Highlights:

• Money Supply: Broad money (M3) grew by 9.6%, down from 11.1% in 2023-24, indicating controlled liquidity expansion.

• Bank Credit: Scheduled commercial banks’ credit grew by 12.1%, driven by demand in services, personal loans, and micro, small, and medium enterprises (MSMEs), though slower than the 16.3% growth in 2023-24.

• Credit-Deposit Ratio: This rose to 79.1%, signaling efficient credit deployment and strong financial intermediation.

• Reserve Money: Growth slowed to 3.3%, with currency in circulation up by 5.8%, reflecting tighter liquidity management.

• Credit Demand Drivers: Working capital needs and infrastructure financing were key drivers of credit demand, particularly among firms in manufacturing and services.

• Monetary Policy Transmission: Lending rates aligned closely with the central bank’s policy rate, ensuring effective transmission to the real economy.

4. Financial Markets: Vibrant Activity and Stable Rates

India’s financial markets demonstrated resilience in 2024-25, with a surge in primary market issuances and stable interest rates, reflecting strong investor confidence and effective liquidity management.

Key Highlights:

• Primary Market:

  • Public and rights issues soared to ₹218,120.1 crore in 2024-25, up from ₹102,258.8 crore in 2023-24, driven by non-financial private sector issuances (₹190,768.8 crore).

  • Equity issuances, particularly Initial Public Offers (IPOs), dominated at ₹172,328.1 crore, signaling robust market sentiment.

  • Private placements grew to ₹1,465,866.3 crore, with debt instruments at ₹1,246,185.2 crore, reflecting strong corporate borrowing.

• Interest Rates:

  • The 10-year government security (G-sec) yield moderated to 6.9% from 7.2%, indicating stable borrowing costs.

  • The call/notice money rate held steady at 6.5%, ensuring liquidity balance.

  • The weighted average cost of central government borrowings was 7.0%, supporting fiscal sustainability.

• Liquidity:

  • Outstanding liquidity under the central bank’s adjustment facility was ₹1.3 lakh crore, with the standing deposit facility at ₹4.1 lakh crore, reflecting proactive liquidity management.

5. Government Finances: Fiscal Consolidation Gains Traction

India’s fiscal landscape in 2024-25 showed significant progress in consolidation, with the central government’s Gross Fiscal Deficit (GFD) declining to 4.7% of GDP from 5.5% in 2023-24, reflecting disciplined expenditure and robust revenue growth.

Key Highlights:

• Central Government:

  • Revenue Receipts rose to 9.3% of GDP, driven by higher tax collections (₹6,142 thousand crore), particularly from income and commodity taxes.

  • Capital Outlay remained strong at 2.6% of GDP, supporting infrastructure development in roads, railways, and renewable energy.

  • Primary Deficit fell to 1.3% of GDP, indicating reduced non-interest expenditure.

• State Governments:

  • The GFD rose to 3.6% of GDP from 3.0%, with a revenue deficit of 0.6%, reflecting increased spending pressures.

  • States relied heavily on market borrowings, with net borrowings at ₹1,984 thousand crore.

• Combined Finances:

  • Total receipts reached ₹9,650 thousand crore (Budget Estimates), with tax receipts at ₹6,142 thousand crore.

  • The combined GFD was 7.6% of GDP, highlighting the need for coordinated fiscal discipline between central and state governments.

6. External Sector: Navigating Global Headwinds

India’s external sector faced challenges from a global trade slowdown in 2024-25, but strong foreign exchange reserves and FDI inflows provided stability.

Key Highlights:

• Current Account:

  • The Current Account Deficit (CAD) widened to 1.3% of GDP from 0.7% in 2023-24, driven by a trade deficit of 7.9% of GDP.

  • Merchandise Exports grew by 1.8%, while imports contracted by -3.2%, reflecting weak global demand.

  • Net Invisibles (services, income, and private transfers) reached $190,127 million, with software services contributing $118,129 million.

• Capital Account:

  • Foreign Direct Investment (FDI) inflows rose to $50.0 billion, with Singapore ($15.0 billion) and Mauritius ($8.3 billion) as top sources.

  • Portfolio Investment was $9,423 million, down from $44,081 million in 2023-24, indicating cautious global investor sentiment.

• Foreign Exchange Reserves: Reserves stood at $717.9 billion, covering 10.5 months of imports, though the reserves-to-debt ratio fell to 88.6%.

• Exchange Rate: The Indian Rupee depreciated to an average of ₹84.6 per US dollar, but the 40-currency Real Effective Exchange Rate (REER) appreciated by 1.5%, reflecting relative currency strength.

• Outward FDI: India’s strategic investments in technology and manufacturing abroad gained traction, supporting global competitiveness.

7. Monetary Policy and Financial Inclusion: Driving Growth and Access

India’s monetary policy and financial inclusion initiatives played a pivotal role in supporting economic growth and expanding financial access in 2024-25.

Key Highlights:

• Monetary Policy:

  • The central bank maintained a neutral stance, balancing inflation control with growth support. Tools like the standing deposit facility (₹4.1 lakh crore outstanding) and variable rate repo ensured effective liquidity management.

  • Improved policy transmission aligned lending rates with the repo rate, benefiting borrowers across sectors.

• Financial Inclusion:

  • The Financial Inclusion Index improved, driven by initiatives like the Aadhaar Enabled Payment System (AePS) and Bharat Bill Payment System (BBPS).

  • Financial literacy campaigns, including Financial Literacy Week and Centres for Financial Literacy, enhanced public awareness.

• Digital Payments:

  • The Digital Payments Index reflected strong growth in UPI and other digital platforms, with cross-border payment systems gaining traction through global initiatives like Project Nexus.

• Currency Management:

  • Currency in circulation grew by 5.8%, with the currency-GDP ratio at 11.2%.

  • Sustainable practices, such as recycling banknote shreds, aligned with environmental goals.

8. Financial Stability and Regulation: Building a Robust Ecosystem

India’s financial sector remained resilient in 2024-25, with strong regulatory measures ensuring stability and fostering innovation.

Key Highlights:

• Financial Stability: Banks maintained healthy capital adequacy ratios, with low systemic risks. Climate risk assessment tools enhanced resilience against environmental challenges.

• Regulation and Supervision: Stricter norms for non-banking financial companies (NBFCs) and fintech firms ensured compliance, while enforcement actions addressed regulatory violations.

• FinTech: The focus on digital lending apps promoted innovation while mitigating risks, supporting India’s growing fintech ecosystem.

9. Reduction in fraud cases but increase in amount

This was an interesting mention - The number of cases on frauds reported by banks has declined to 23,953 in FY25 from 36,060 in FY24.

However, in terms of amount, frauds has been in- creased 3-times to Rs 36,014 crore in FY25 from Rs12,230 crore in FY24. Private sector banks reported maximum number of frauds, public sector banks continued to contribute maximum to the fraud amount.

On average, fraud cases are becoming bigger!

10. Looking Ahead: Prospects for 2025-26

India’s economic outlook for 2025-26 is optimistic, with GDP growth projected at 6.7% and inflation expected to stabilize at 4.5%.

Key priorities include:

• Monetary Policy: Maintaining price stability while supporting growth through targeted liquidity measures.

• Financial Inclusion: Expanding digital payment ecosystems and financial literacy to bridge the urban-rural divide.

• External Sector: Enhancing export competitiveness and managing the CAD amid global uncertainties.

• Sustainability: Integrating climate risk into financial regulation to ensure long-term resilience.

What’s the conclusion?

India’s economy in 2024-25 demonstrated resilience, with robust growth, moderating inflation, and a vibrant financial sector. One of the key concern areas is weakness in FDI.

As India navigates global challenges, sustained reforms, infrastructure investment, and inclusive financial policies will be key to achieving 6.7% growth in 2025-26. For investors, policymakers, and citizens, India’s economic story is one of opportunity, resilience, and forward momentum. One argument could be that we need to grow faster and control the actual inflation on ground, but at least it looks like we are on the right track.

Disclaimer – The views presented here are my own and doesn’t reflect views of my employer in any way and it shouldn’t be construed as that in any way whatsoever.