The current slowdown in auto and fast-moving consumer good (FMCG) sales in urban areas, the ministry said in its monthly economic review for August, may turn out to be transient with the advent of the peak festive season but these “signs of weakness” in urban demand warrant monitoring.
The economy has expanded 27% between FY21 and FY24, more than offsetting the pandemic-induced slump, it said. The June quarter growth of 6.7%, too, was driven by a broad-based rebound in non-farm sectors.
“In the absence of any serious adverse climate shocks, rural incomes and demand should get stronger, and food inflation will be milder,” it said.
The inflation trajectory is going to be positive as benign core inflation, good monsoon, and healthy sowing progress of Kharif crops are likely to keep price pressure under control, the ministry said.
Kharif sowing has picked up, brightening prospects of farm production. Adequately replenished reservoir levels will potentially boost the upcoming Rabi crops as well and the skewed spatial distribution of rain may have only limited impact on farm output in a few regions.
“Mirroring the strong build-up in productive activity, the major components of aggregate demand, including private consumption, fixed investment and exports, have picked up pace,” it added.
Most high-frequency gauges–including GST mop-up, expansionary trends in the purchasing managers’ indices and growth in air and port cargo–indicate vigorous economic activity and continuing expansion in the September quarter.
The report stayed with the Economic Survey’s projection of a real growth rate of 6.5 -7% for FY25.
Fixed investment grew 7.5% in the June quarter from a year before despite subdued growth in public capex during the election signals “the strengthening of the private investment cycle”, the report said.
Net payroll additions under the EPFO picked up in the June quarter, “signalling a rebound in formal job creation”.
As global demand remains subdued, India’s goods exports have barely grown this fiscal but strong domestic consumption has boosted imports, the ministry said, explaining the reason for India’s elevated goods trade deficit in recent months.
Some challenges
Apart from the “incipient signs of strains” in certain sectors, as reflected in a slowdown in auto and FMCG sales in urban India, the report also flagged moderation in capital spending by states this fiscal.