The Indian economy continued its growth trend in the first quarter (April-July) of FY25, as noted in the latest monthly economic review from the Department of Economic Affairs. GST collections saw a significant rise in the first four months of FY25, due to a broader tax base and increased economic activity. This increase was also supported by a double-digit increase in e-way bill generation. Both the manufacturing and services sectors showed strong performance, driven by high demand and greater capacity utilisation. The manufacturing growth was driven by expansion in demand conditions, a rise in new export orders and growth in output prices, the FinMin report says.
The RBI’s Order Books, Inventories, and Capacity Utilisation Survey (OBICUS) indicates an expansion in manufacturing capacity utilisation. The services sector has also flourished, notably benefiting from the tourism and hotel industries. Looking ahead, the report suggests the Union Budget FY25’s measures for MSMEs, manufacturing, and services are expected to "boost" these sectors.
The report also noted mixed signals regarding employment conditions. “As per the RBI Services and Infrastructure Outlook Survey, respondents remain optimistic about the overall business situation, turnover, and employment conditions in Q1 of FY25, coupled with the expectation of easing pressures from wage bills, input costs and cost of finance,” it states.
In terms of capital flows, foreign portfolio investors (FPIs) have been net buyers since June 2024, reversing previous trends. Net foreign direct investment (FDI) inflows have increased in the first three months of FY25, leading to foreign exchange reserves reaching $675 billion by August 2, 2024, sufficient to cover 11.6 months of imports, the report states.
The report notes the retail inflation fell lowest since September 2019 to 3.5% in July 2024, primarily due to moderated food inflation. The progress of the southwest monsoon has positively impacted kharif sowing, and increased reservoir levels are expected to benefit both current and future crop production, further reducing food inflation.
The report states the Union Budget FY25 focuses on fiscal consolidation, with a projected reduction in the fiscal deficit supported by robust revenue collection, controlled expenditure, and a strong economy.
Merchandise exports and imports in FY25 have surpassed the previous year’s levels, signalling a recovery in global demand, particularly from India’s export partners, which has driven up exports, the report says. "Strong domestic demand has also increased imports, widening the merchandise trade deficit. Conversely, services exports have risen, increasing net services receipts," it adds.
Labour market indicators have also shown positive trends, though two RBI perception surveys indicated a decline in sentiment. "The quarterly urban unemployment rate was steady at 6.6% in Q1 FY25 compared to Q1 FY24. Net EPFO payroll additions increased year-on-year (YoY) in Q1 FY25, bolstered by growth in PMI employment sub-indices in July. The Naukri Jobspeak index also improved."
Overall, India’s economic momentum appears stable, it says. "Despite a variable monsoon, replenished reservoirs, growing manufacturing and services sectors, increased tax collections, and moderated inflation contribute to a positive outlook. Exports of goods and services have improved compared to the previous year, stock markets remain steady, and foreign direct investment is on the rise," it states.
