New Delhi: The Indian economy has kept up its momentum in the first four months of the current Financial Year 2024-25. According to the Finance Ministry's Monthly Economic Review, the combination of a good monsoon, strong GST collections, improving reservoir levels, and rising e-way bill generation is set to energise economic activity.
The government is hopeful that budget measures will provide a significant boost to the manufacturing sector, driving further growth. Furthermore, they’re optimistic that inflation will stay within the RBI’s comfort zone. According to the Finance Ministry’s July review, GST collections for the month held strong, hitting their second-highest level since May 2023. Gross GST revenue climbed 10.3 per cent year-on-year, bringing the total for FY24 (April to July) to ₹7.4 lakh crore. The rise in gross GST collection in FY 25 is also accompanied by a level shift over the years on the back of heightened economic activity and a widening tax base. The upward level shift is reflected in the average GST collections rising from ₹1.68 lakh crore in FY24 to ₹1.85 lakh crore in FY25.
July also saw a notable uptick in e-way bill generation, signalling increased economic activity. The number of e-way bills issued hit a record 10.5 crore, marking a nine-month high with a 19.2 per cent year-on-year rise. Month-on-month, e-way bill generation grew by 4.7 per cent, and for FY24 so far, it’s up over 16.8 per cent compared to the same period last year.
Higher GST Collection on cards
According to the Finance Ministry’s monthly economic review, the ongoing growth reflects sustained economic activity and strong industry engagement, which is expected to boost the GST collections in the coming months.
The manufacturing sector has also shown impressive performance in the first four months of FY25. The Purchasing Managers' Index (PMI) for manufacturing stood at 58.1 in July 2024, well above the long-term average and among the highest in recent years. This indicates good demand and increased production volumes, signalling positive overall economic health.
However, the manufacturing sector faced a significant rise in input costs in July 2024, reaching their highest levels in nearly two years. This increase was driven by higher prices for coal, leather, packaging materials, paper, rubber, and steel. As a result, manufacturers had to raise output prices, which surged to an 11-year high.
Additionally, the Index of Industrial Production (IIP) recorded a 5.2 per cent year-on-year growth in Q1 of FY25, up from 4.7 per cent in the same quarter the previous year. This growth was particularly strong in the production of primary goods, intermediate goods, and consumer durables. The index for eight core industries also saw a 5.7 per cent year-on-year increase in Q1 of FY25.
Housing Demand
The rise in steel consumption and cement production is largely driven by a growing demand for housing. Housing sales increased in Q1 of FY25 compared to the same period last year. According to Prop Tiger, while sales in eight major cities did slow down slightly on a sequential basis in Q1 of FY24, they still saw a significant year-on-year increase of 41.8 per cent. This surge in sales reflects strong consumer confidence in real estate investments, supported by solid macroeconomic fundamentals.
Inflationary pressures eased
Government data reveals that retail inflation, as measured by the Consumer Price Index-Combined (CPI-C), fell from 5.1 per cent in June 2024 to 3.5 per cent in July 2024, the lowest level since September 2019. This drop was largely due to a significant decrease in food inflation, which fell from 9.4 per cent in June to 5.4 per cent in July. The reduction in food inflation was primarily driven by a sharp decline in vegetable prices—from 29.3 per cent in June to 6.8 per cent in July—as well as a mild decrease in the prices of oils, fats, and spices.
Monsoon Support for Agriculture
The report indicates that steady progress in the southwest monsoon has supported agricultural activity. As of August 19, 2024, cumulative rainfall from the monsoon was 3 per cent above the long-term average. Rainfall distribution has improved, with 84 per cent of subdivisions receiving normal or excess rainfall. This has enabled healthy Kharif sowing. By August 16, 2024, the area sown with total food grains was 4.8 per cent higher than the same period last year, with cereals and pulses up by 4.6 per cent and 5.7 per cent, respectively.
Improving reservoir storage bodes well for agricultural output. As of August 15, 2024, water levels in 150 reservoirs were at 111 per cent of the levels recorded at the same time last year and 114 per cent of the ten-year average, according to the Central Water Commission. This improvement ensures adequate water availability for irrigation during the current Kharif season and the upcoming Rabi crop production. This is expected to contribute to strong food production and help mitigate food inflation in the coming months.
