India's Economic and Policy Updates - February 25, 2025
Government Initiates Minority Stake Sales in State-Run Banks
The Indian government has announced plans to divest minority stakes in select public sector banks and financial institutions. To facilitate this, bids have been invited to appoint merchant bankers and legal advisers. This move aims to comply with the Securities and Exchange Board of India's mandate for companies to maintain a minimum of 25% public shareholding by August 2026. The banks identified for this initiative include Central Bank of India, Indian Overseas Bank, UCO Bank, and Punjab and Sind Bank, where the government's stake exceeds 93%. Interested advisers are required to submit their bids by March 27, with appointments lasting three years.
GDP Growth Rebounds Due to Government Spending
India's economy experienced a rebound in the October-December quarter, with an estimated growth of 6.3%. This resurgence is primarily attributed to increased government expenditure, which helped offset weak household demand. The previous quarter saw a slowdown to 5.4% growth, influenced by reduced infrastructure spending post-national elections. Despite the recent uptick, economists caution that sustainable growth requires broader reforms, especially in labor and agricultural markets, to achieve the desired 8% growth rate necessary for substantial job creation and economic advancement.
Former RBI Governor Appointed as Prime Minister's Key Aide
In a strategic move to bolster economic governance, former Reserve Bank of India Governor Shaktikanta Das has been appointed as the second principal secretary to Prime Minister Narendra Modi. This newly created position underscores the administration's focus on addressing economic challenges amidst domestic and global uncertainties. Das's extensive experience, including his tenure as RBI Governor and roles within the finance ministry, is expected to provide valuable insights into economic recovery and policy formulation.
RBI Eases Withdrawal Limits for New India Co-operative Bank Depositors
The Reserve Bank of India has permitted depositors of the financially troubled New India Co-operative Bank to withdraw up to ₹25,000 from their accounts. This decision comes after the RBI imposed restrictions on the bank earlier this month, including a suspension of new loans and a freeze on withdrawals for six months, due to concerns over the bank's liquidity and supervisory issues. The relaxation in withdrawal limits is expected to benefit more than half of the bank's account holders.
Decline in Gold Imports Amid Record High Prices
India's gold imports are projected to plummet by 85% in February compared to the same period last year, reaching a two-decade low. The sharp decline is attributed to soaring gold prices, which have reached a record $2,956.15 per troy ounce. This reduction in imports is anticipated to aid in narrowing India's trade deficit and stabilizing the rupee. Typically, February sees an average import of 76.5 tonnes of gold; however, this year, imports are expected to be around 15 tonnes.
RBI's February Rate Cut Driven by Manufacturing Slowdown
The Reserve Bank of India's Monetary Policy Committee (MPC) implemented a key repo rate cut in February, responding to a significant slowdown in the manufacturing sector. This sector is vital for job creation and economic growth. The decision was influenced by subdued urban consumption and sluggish private investments. India's projected annual growth stands at 6.4% for the fiscal year ending in March, marking the slowest pace in four years, primarily due to weaknesses in manufacturing and tepid corporate investments.
India's Steel Industry Faces Import Restrictions
Starting January 1, 2025, India has imposed a six-month cap on the import of low-ash metallurgical coke, a crucial component in steel production