Festive spending to boost Q3 numbers after weak Q2: RBI

MUMBAI: The slowdown observed in Q2 FY25 is behind us, according to RBI’s State of the Economy report. The statement comes as private consumption resumes its role as the primary driver of domestic demand, aided by a pickup in festival spending in Q3. However, private investment remains lacklustre as evidenced by sequentially lower investment in fixed and non-current assets in Q2, attributed to subdued corporate earnings.
“Festival spending has boosted real activity in the third quarter. Footfall in malls may be low, but e-commerce is burgeoning with a variety of marketing strategies and brand recall initiatives targeting Gen Z. FMCG and auto companies have been increasing ad spends to revive demand. Rural India is emerging as a gold mine for e-commerce companies this festival season,” the report, co-authored by RBI deputy governor Michael Patra, noted.
There are also indications that RBI may not ease rates due to inflationary pressure. “Inflation is already biting into urban consumption demand and corporates’ earnings and capex. If allowed to run unchecked, it can undermine the prospects of the real economy, especially industry and exports,” it said.
The report highlighted that direct-to-consumer (D2C) brands are actively seeking funds to expand their presence and increase sales through quick-commerce platforms – an ecosystem valued at over $5 billion and projected to reach $30 billion by 2029-30.
“Retailers are reporting a pickup in sales growth relative to the second quarter. E-two wheelers sparkled this Diwali, although there is a distinct premiumisation that has gained further ground,” the report said.

However, the Indian economy faces challenges. Domestic financial markets are experiencing corrections due to the persistent strengthening of the dollar and pressure on equities caused by continual portfolio outflows. In Oct 2024, headline CPI inflation exceeded the upper tolerance limit, driven by a sharp surge in food price momentum and an increase in core inflation.
“Alongside the ticking time bomb of indebtedness, potential spillovers and widening wars are shifting the fault lines of the global economy,” the report warned, flagging global risks.
Despite these challenges, the medium-term outlook for the Indian economy remains bullish, supported by strong macroeconomic fundamentals. Striking a positive tone, the report noted that private consumption is rebounding, fuelled by a resurgence in consumer confidence and economic activity. The agriculture sector is also recovering, with record kharif foodgrain production and promising rabi crop prospects supporting farm income and rural demand.
“The manufacturing and construction sectors continue to be dynamic, contributing to industrial growth and job creation. India is emerging as a leader in sustainable transportation, supported by favourable policies, subsidies, and growing infrastructure for electric vehicles.