The Indian economy has continued to sustain its momentum during the first four months of FY25, according to the finance ministry’s latest economic review, released on August 22. The review, which comes after the Lok Sabha elections, reaffirms the government’s confidence in achieving the 6.5-7 percent growth forecasted in the Economic Survey.
Robust GST collections and economic activity
One of the key highlights of the review is the robust performance in Goods and Services Tax (GST) collections. The ministry noted that GST collections experienced a significant uptick, driven by the widening of the tax base and increased economic activity. This surge in GST collections reflects the broader economic vitality observed in the country.
The double-digit growth in the generation of e-way bills, a key indicator of goods movement and economic activity, suggests that GST collections are likely to remain strong in the coming months. This trend underscores the resilience of the Indian economy despite global uncertainties.
Additionally, the strong performance of the services and manufacturing sectors, as indicated by the Purchasing Managers’ Index (PMI), further highlights the economy’s sustained momentum. Flash PMI data released earlier also confirmed that the economy maintained its growth trajectory in August.
Fiscal discipline and external sector outlook
The review emphasized the government’s commitment to fiscal discipline, as laid out in the Budget. The fiscal deficit target has been revised downward to 4.9 percent of GDP from 5.1 percent in the interim Budget, with an aim to reduce the deficit to 4.5 percent by FY26. This sustained fiscal glide path is seen as crucial for maintaining economic stability and fostering growth.
The government also expressed optimism regarding the external sector. After a challenging FY24, where India’s merchandise exports saw a slight decline due to global factors, FY25 has shown signs of a positive turnaround. The recovery in global demand across India’s major export partners has provided a much-needed boost to exports, while strong domestic demand has continued to fuel imports.
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Inflation and employment trends
On the inflation front, the finance ministry expressed a positive outlook, noting that headline inflation is likely to remain contained. The review pointed out that moderate core inflation, combined with the steady progress of the monsoon, is expected to keep inflation in check.
“The steady progress in the southwest monsoon has supported kharif sowing, and the replenishing water levels in reservoirs bode well for current kharif and upcoming rabi crop production. This will further aid in reducing food inflation in the coming months,” the report stated.
Consumer inflation saw a significant decline, reaching a 59-month low of 3.5 percent in July, a development that is expected to provide relief to consumers and bolster economic confidence.
Regarding employment, the review highlighted positive developments, with labor market indicators showing encouraging signs in recent months. However, it also noted that two perception surveys by the Reserve Bank of India (RBI) indicated some weakening in sentiment, suggesting that while the overall outlook is positive, there are areas that require close monitoring.
The finance ministry’s review paints a largely optimistic picture of the Indian economy’s performance in the first four months of FY25. With robust GST collections, strong sectoral performance, fiscal discipline, and positive inflation and employment trends, the government appears confident in its ability to achieve the projected growth rate. However, the review also underscores the need for continued vigilance, particularly in the face of global uncertainties and domestic challenges.
