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After witnessing contraction in the first quarter of the current financial year (Q1FY25), the government is expecting public expenditure to pick up in the remaining quarters, even though there is a need for monitoring automobiles and fast moving consumer goods (FMCG) sales due to slowdown seen in Q1, the finance ministry (FinMin)’s Monthly Economic Review for August said.
“As public expenditure picks up and the rural economy strengthens, the overall growth is expected to remain steady in the subsequent quarters… urban consumption shows some signs of weakness, evident in the decline in automobile sales in the first five months of the current financial year compared to the same period last year,” the monthly review said.
In its latest biannual Asian Development Outlook (ADO) released on Wednesday, the Asian Development Bank (ADB) had flagged “failure” of the government to meet its capital expenditure target in FY25 as a downside risk. “To achieve the planned capital expenditure target, central government capital spending needs to grow by 39 per cent year-on-year (Y-o-Y) in the remaining nine months, which may be difficult,” the ADO said.
The FinMin review released on Thursday said that the risk of market correction has risen amid a boom around the world and if this risk materialises, the spillover effect may be felt globally as well. However, the FinMin report highlighted that low oil price is a bright spot for the economy.
The review said navigating 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.”
The FinMin has maintained the growth projection of 6.5-7 per cent for FY25, based on the GDP growth of 6.7 per cent in Q1FY25 and the movements in high-frequency indicators till August.
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The review also noted that India’s export of goods, even after accounting for the decline in the prices of petroleum products, has grown negligibly in the first five months of the year compared to the same period last year. “It reflects weak global demand and India’s persisting challenges with scaling up production, productivity and competitiveness,” the FinMin said.
The review said there were also incipient signs of strains in certain sectors, referring to moderating sales of passenger vehicles and a build-up of inventory. It added that data from Nielsen IQ indicated that the growth of FMCG sales in urban areas slowed in Q1FY25.
“While these may turn out to be transient with the onset of the festive season, they warrant monitoring. Further, capital spending by Indian states has declined in the current financial year,” the monthly review said.
The review further said that in the absence of any serious adverse climate shocks, rural incomes and demand should get stronger, and food inflation should be milder. “The skewed spatial distribution of rain may have an impact on farm output in a few regions,” it said.
In the farm sector, the review said, higher kharif acreage was already visible and adequately replenished reservoir levels would potentially give a fillip to the upcoming rabi crops as well.
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