India's economy has maintained its robust growth trajectory in the early part of the current financial year, according to the latest economic review from the Department of Economic Affairs released on August 22. The review highlights a positive outlook for the Indian economy, supported by strong domestic activity, improving external trade, and increasing capital flows.
Key Highlights of the Economic Review
The review notes that India's key economic indicators reflect a continued growth momentum. This is evident from the surge in Goods and Services Tax (GST) collections, driven by a broader tax base and heightened economic activity. Additionally, a notable rise in e-way bill generation indicates sustained economic dynamism.
The manufacturing and services sectors are performing strongly. Manufacturing growth is fueled by rising demand, new export orders, and higher output prices. The latest survey by the Reserve Bank of India (RBI) shows increased capacity utilization within the manufacturing sector. Similarly, the services sector has benefited from growth in contact-intensive industries like tourism and hospitality.
Fiscal and Trade Developments
The Union Budget for FY25 focuses on fiscal consolidation, aiming to lower the fiscal deficit through robust revenue collection and disciplined expenditure. High capital expenditure continues to support private investment, contributing to the overall economic strength.
Trade data reveals that merchandise exports and imports have surpassed last year's levels, reflecting a recovery in global demand and increased domestic consumption. Although the merchandise trade deficit has widened due to higher imports, services exports have risen, leading to improved net services receipts.
Foreign capital flows have also been favorable. Foreign Portfolio Investors (FPIs) have been net buyers since June 2024, reversing previous trends. Foreign Direct Investment (FDI) inflows have increased, bolstering foreign exchange reserves, which stood at USD 675 billion by August 2, 2024. This is sufficient to cover 11.6 months of imports.
Inflation and Employment Trends
Retail inflation dropped to 3.5 percent in July 2024, the lowest since September 2019, largely due to reduced food inflation. The favorable progress of the southwest monsoon and improved reservoir levels are expected to support crop production and further lower food inflation.
Labour market indicators show improvements, although recent surveys by the RBI suggest some weakening in employment sentiments. The urban unemployment rate remained stable at 6.6 percent in Q1 FY25, compared to the previous year. Net payroll additions have increased, and the Naukri Jobspeak index indicates better job market conditions.
Economic Outlook and Projections
Despite challenges like an erratic monsoon, India's economic momentum remains steady. Manufacturing and services sectors are expanding, tax collections and bank credit are growing, and inflation is under control. Exports have improved, and stock markets are stable, with increasing foreign direct investment.
Current projections estimate real GDP growth for FY25 to be between 6.5-7.0 percent, in line with earlier economic surveys. These developments reflect a broad trend of economic expansion, with continued investment and employment generation expected to follow.
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