Recent data signals that economic growth may struggle in the October-December quarter of 2024-25.
GDP growth slowed to 5.4% in Q2, and the Finance Ministry and Reserve Bank of India (RBI) are concerned about a slowing consumption demand.
Urban India is experiencing restrained spending, contributing to lower consumption growth.
However, there is hope for a boost during the festive season and resilient demand in rural areas.
These economic indicators are crucial for the Finance Ministry as they influence the economic blueprint for the 2025-26 Union Budget to be presented on February 1.
The government is focusing on understanding the reasons behind slowing consumption and the role of high inflation.
Bank credit growth has slowed for five consecutive months.
Core infrastructure sectors (about 40% of industrial output) showed some positive signs, growing by 4.3%, a four-month high.
However, production levels were still 3.3% below October, with six out of eight sectors operating below capacity.
Factory activity in November and December was the weakest of 2024, according to the Purchasing Managers' Index (PMI).
Increased input cost inflation has led to price hikes, which could hurt demand over time.
GST receipts for December were the lowest in three months, amounting to ₹1.77 lakh crore — just a 7.3% increase from last year, the second slowest in three and a half years.
Revenue growth has decelerated, with four consecutive months of growth under 10%.
The year-to-date revenue rise is only 8.6%, far from the 11% growth target in the Union Budget.
Revenue growth from domestic transactions slowed to 8.4%.
Import revenue growth was low at 3.9%, despite a 27% jump in imports in November.
Major consumer states like Uttar Pradesh (1%) and Gujarat (4%) saw weak revenue growth, while states like Andhra Pradesh and some northeastern states experienced revenue contraction.
The Finance Ministry needs to address weak consumption and high inflation to ensure a better outlook for the economy.
Policymakers will need to factor in these challenges when designing the 2025-26 Budget.
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