Indian Economy Shows Strong Growth in Early FY25
In the first four months of FY25, the Indian economy has shown impressive resilience and sustained momentum, according to the Department of Economic Affairs’ monthly economic review. The real GDP growth is projected to be between 6.5-7.0 per cent for FY25, as per the Economic Survey for 2023-24.
Key Indicators of Economic Strength
Several key indicators point to a strengthening economic landscape:
- GST Collections: There has been a notable surge in GST collections, driven by a broader tax base and increased economic activity. This is further supported by a double-digit increase in e-way bill generation.
- Manufacturing Sector: The RBI’s Order Books, Inventories, and Capacity Utilisation Survey (OBICUS) shows a marked expansion in capacity utilization, driven by rising demand, new export orders, and increased output prices.
- Services Sector: The services sector has also performed strongly, particularly in tourism and hotels, reflecting a rebound in contact-intensive services. The Purchasing Managers’ Indices (PMIs) for both manufacturing and services sectors indicate sustained expansion.
Fiscal and External Sector Developments
The Union Budget FY25 outlines a clear path for fiscal consolidation, supported by strong revenue collections and disciplined expenditure management. The fiscal deficit is projected to decline, fostering private investment. The external sector has shown recovery, with merchandise exports and imports surpassing previous year levels. Foreign capital flows have improved, with Foreign Portfolio Investors (FPIs) becoming net buyers from June 2024 onwards and Foreign Direct Investment (FDI) inflows increasing. As of August 2, foreign exchange reserves reached a historic high of USD 675 billion.
Inflation and Labour Market Trends
Retail inflation moderated to 3.5 per cent in July 2024, the lowest since September 2019, primarily due to reduced food inflation. The favourable progress of the southwest monsoon has supported agricultural stability, which is expected to further ease food inflation. Labour market indicators show positive trends, with net EPFO payroll additions growing in Q1 FY25 and expansion in PMI employment sub-indices observed in July. However, recent RBI surveys reveal a dip in urban consumer sentiment regarding employment and manufacturers’ hiring intentions.
Overall, the evidence suggests continued economic expansion and employment growth.
Doubts Revealed
FY25 -: FY25 stands for Fiscal Year 2025. A fiscal year is a one-year period that governments and businesses use for financial reporting and budgeting. In India, it starts on April 1 and ends on March 31 of the next year.
GST Collections -: GST stands for Goods and Services Tax. It is a tax that people pay when they buy goods and services. The government collects this tax to use for public services like building roads and schools.
Real GDP -: Real GDP stands for Real Gross Domestic Product. It measures the total value of all goods and services produced in a country, adjusted for price changes or inflation. It helps us understand how well the economy is doing.
Union Budget -: The Union Budget is a financial plan presented by the Indian government every year. It outlines the government’s revenue and expenditure for the upcoming year, including how much money will be spent on different sectors like health, education, and defense.
Fiscal Consolidation -: Fiscal consolidation means the government is trying to reduce its debt and deficit. This is done by either increasing revenue (like taxes) or reducing spending, to make sure the country’s finances are healthy.
External Sector -: The external sector refers to a country’s trade with other countries. It includes exports (selling goods to other countries) and imports (buying goods from other countries). A recovery in the external sector means the country is doing better in international trade.
Retail Inflation -: Retail inflation is the rate at which the prices of goods and services bought by consumers increase over time. When inflation moderates, it means prices are not rising as quickly, which is good for consumers.
Labour Market Indicators -: Labour market indicators are statistics that show how well the job market is doing. This includes things like the unemployment rate, the number of people working, and job vacancies. Positive indicators mean more people have jobs and the economy is strong.
Urban Consumer Sentiment -: Urban consumer sentiment refers to how people living in cities feel about their financial situation and job prospects. If sentiment dips, it means people are less confident about finding jobs or their financial future.
