Economic outlook for the six-month period starting October 1 to end on March 31 (H2) appears to be better than the first half of the fiscal 2025-26, a Finance Ministry report said on Thursday. However, it expressed concern about insufficient job opportunities and lower salaries affecting consumption in the cities.

India’s economic growth dipped to 7 quarters low of 5.4 per cent during July-September quarter which impacted growth in H1 and that was 6 per cent this fiscal as against 8.2 per cent during corresponding half of the last fiscal. The slowdown has led to the downgrading of the GDP growth forecasts for 2024-25 by most analysts to 6.5 per cent from around 7 per cent earlier. The RBI has downgraded it to 6.6 per cent from 7.2 per cent earlier. All eyes are now on the Statistics Ministry when it releases the First Advance estimates of Annual GDP for the current fiscal on January 7.

Brighter outlook

According to the Monthly Economic Review by the Economic Affairs Department, the performance of HFIs (High Frequency Indicators) for October and November indicates a brighter outlook for October-December. An increase in minimum support price (MSP) for rabi crops, high reservoir level and adequate fertilizer availability also bode well for rabi sowing. Industrial activity is likely to gain traction.

Further, Purchasing Managers Indices (PMI for both Manufacturing and Services) for October and November remained firmly in the expansionary range, supported by new business growth, strong demand, and advertising efforts. The conclusion of the monsoon season and the expected increase in government capital expenditure are expected to support the cement, iron, steel, mining and electricity sectors.

On the demand side, rural demand remains resilient, as highlighted by 23.2 per cent and 9.8 per cent growth in two & three-wheeler sales and domestic tractor sales, respectively, in October-November 2024. Urban demand is picking up, with passenger vehicle sales registering YoY growth of 13.4 per cent in October-November 2024 – and domestic air passenger traffic witnessing robust growth. Inflation data is also on downtrend, the report said.

‘Structural factors’

The report said the possibility that “structural factors” may have contributed to the slowdown in H1. The combination of monetary policy stance and macroprudential measures by the central bank may have also contributed to the demand slowdown.  

“It is good news that the central bank lowered the cash reserve ratio from 4.5 per cent to 4 per cent in its policy meeting in December 2024. That should help boost credit growth, which has slowed a little too much and quickly in FY25. Hiring and compensation practices in the corporate sector have also played their part in slowing urban consumption growth,” the report said.