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There are “incipient signs” of strain in certain sectors in the Indian economy such as automobiles and fast-moving consumer goods sales in urban areas, Ministry of Finance said in its monthly economic review for August released Thursday. These signs of strain, the Ministry underlined, may turn out to be transient with the onset of festival season, but they “warrant monitoring”.
“There are also incipient signs of strains in certain sectors. For instance, the automobile dealers’ body, FADA, has pointed to moderating sales of passenger vehicles and a build-up of inventory. Data from Nielsen IQ indicated that the growth of fast-moving consumer goods sales in urban areas slowed in Q1 FY25. While these may turn out to be transient with the onset of the festival season, they warrant monitoring,” the review said.
The Ministry also flagged concerns about the boom in stock markets around the world and the likelihood of a correction, which will result in spillover effects globally. “Stock markets around the world are booming, reinforced by recent policy announcements in a few countries. Consequently, the risk of an eventual correction has risen. If the risk materialises, the spillover effect may be felt globally as well. Amidst these concerns, low oil prices is a bright spot for the economy,” it said.
The low level of public spending has been a concern this year, especially the decline in capital spending by states in the current financial year, the Ministry said, adding that it is expected to pick up going ahead. “Owing to the general elections during April-June, the general government expenditure is gathering pace only gradually in the current financial year…it is clear that household and private investment supported the growth, as the capital expenditures of both the Union and state governments were lower in Q1 FY25 because the period was an election quarter. Government expenditure is poised to improve in the upcoming quarters,” it said.
During April-July, capital expenditure by the Centre stood at Rs 2.6 lakh crore in the current financial year, down 18.8 per cent as against Rs 3.2 lakh crore in the year-ago period.
Overall, the Ministry said there are strong foundations of macroeconomic stability in India with steady growth, investment, employment and inflation trends, a strong and stable financial sector and a resilient external account including a comfortable foreign exchange reserve position. However, the continuing uncertainty in global economic prospects is a challenge on the macroeconomic front, it said. “We will likely encounter a cycle of policy rate cuts globally, amid fears of a recession in advanced economies and continuing geopolitical conflicts,” it said.
Going ahead, the pick up in public expenditure is expected to add growth and investment impetus. In the farm sector, higher kharif acreage is visible and adequately replenished reservoir levels will potentially give a fillip to the upcoming Rabi crops as well, the Finance Ministry said. However, the skewed spatial distribution of rain may have an impact on farm output in a few regions.
On the inflation front, the Ministry said the headline retail inflation remained benign in August 2024 at 3.7 per cent, with softening food inflation and steady core inflation. Even though replenished reservoir levels and higher kharif sowing acreage augur well for the food price outlook, the effect of the skewed spatial distribution of the monsoon warrants monitoring, it said. In the absence of any serious adverse climate shocks, rural incomes and demand should get stronger, and food inflation will be milder.
Labour market indicators indicated a strong outlook for the next quarter, the Ministry said. EPFO added 10.5 lakh new members in July 2024, with 59.4 per cent of new members added being in the 18-25 age group, the Ministry said, adding that this indicated that most individuals joining the organised workforce are youth, mainly first-time job seekers, it said. The purchasing managers’ employment sub-index softened marginally while continuing to be in the expansionary zone for the sixth consecutive month in August, it said. The Naukri JobSpeak index retreated to negative growth territory in August, recording a year-on-year contraction of 3.4 per cent. “The job market showed steady performance in the first half of the month, but a unique clustering of holidays in the latter half significantly impacted the overall index. Despite the overall dip, several sectoral sub-indices, including AI-ML, FMCG, pharma/biotech, auto, etc., saw significant growth,” the report said.
For growth, the Ministry pointed out that the high-frequency indicators and the Q1 GDP print fits well with the real GDP growth projection of 6.5-7 per cent. “On balance, the GDP growth of 6.7 per cent in Q1 FY25 and the movements in high-frequency indicators till August fit well with the real GDP growth projection of 6.5-7 per cent for FY25 provided by the Economic Survey 2023-24,” the Ministry said.
