Indian Economy experienced a slowdown
Indian economy’s performance in the third quarter of the year was lackluster, with signs of improvement in consumption and capital expenditure, despite a slowdown in GST sales growth and a dip in manufacturing activity. Data released at the beginning of the year revealed these trends.
According to Paras Jasrai, a senior analyst at India Ratings and Research, GDP growth is expected to reach 6.5% in 3QFY25. The infrastructure sector is showing moderate activity, with core sector growth reaching a 4-month high in November 2024. The government’s capital expenditure is anticipated to increase in 3QFY25, which will support investment demand.
Although Goods and Services Tax collections remained above Rs 1.7 lakh crore for the tenth consecutive month in December, the growth rate decreased to 7.3%. Monthly collections were 3% higher than the previous month, averaging Rs 1.82 lakh crore for the October-December period. However, the growth rate was slower compared to December 2023.
Saurabh Agarwal, Tax Partner at EY India, noted that GST collections slowed down in Q4 2024 due to post-festive season trends and a natural recalibration in consumer spending, indicating a short-term economic slowdown. Gross collections expanded by 8.3% in Q3FY25 compared to 8.9% growth in the second quarter of FY25.
Additionally, the Purchasing Managers’ Index (PMI) data for manufacturing activity were discouraging, ending the year at a 12-month low of 56.4 in December. Manufacturing activity averaged 56.8 in the October-December quarter, the lowest reading in four quarters compared to 57.4 in Q2FY25.
Manufacturing activity averaged 58.2 in the first three months of the fiscal year.
Coal production also decreased in December, with a growth rate of 5.3 percent compared to 7.2 percent in the previous month and 7.4 percent in October.
This performance was an improvement from the previous quarter, where coal production had only increased by 2.4 percent in September and had actually decreased in August.
In the second quarter of FY25, manufacturing had dropped to a six-quarter low of 2.2 percent, while mining had fallen to a five-quarter low of 3.3 percent.
On the consumption side, there are signs of improvement. UPI transactions reached their peak in the third quarter, although growth slowed to 40.8 percent from 42.9 percent in the previous month.
Between October and December, the country saw 48.8 billion transactions worth Rs 68.3 lakh crore, up from 44.4 billion transactions worth Rs 62 lakh crore in the second quarter of FY25.
“The Unified Payments Interface (UPI) has been a game-changer for India’s digital economy, with rapid adoption and growth peaking in mid-2023. However, recent data should be viewed as an indicator of lower consumer spending, in line with GDP growth, rather than a sign of slowing growth or market saturation,” said Agarwal.
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Increased consumption was also reflected in the sales figures of automakers. Maruti Suzuki, the largest seller, saw a 24 percent increase in domestic sales in December; Tata Motors increased by 2 percent, and Toyota by 15 percent.
However, Bajaj experienced a 19 percent decline in the domestic two-wheeler segment. The commercial vehicle segment performed better with a 16 percent increase in sales.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.