The Union Finance Ministry’s recent economic report has expressed alarm about India’s economic trajectory, highlighting weakening consumer demand, especially in urban areas. Despite GDP growth expected to be between 6.5% and 7% in 2024-25, key economic indicators point to a potential slowdown.
The ministry’s September monthly economic review, released on October 28, specifically highlighted declining urban demand and slowing industrial production as key areas of concern. High food inflation and slowing credit growth, despite a notable increase in rural demand supported by favorable monsoon conditions, undermine the expected economic trajectory in the second quarter of 2024-25. Difficulties may arise.
The report highlights that declining urban demand is a major concern. Several factors are influencing this trend.
Auto Sales: Auto sales fell 2.3% in the first half of the year. This was mainly driven by a sharp decline in the second quarter, reflecting a slowdown in urban consumer spending. FMCG (FMCG): Weak sales in the FMCG sector indicate lower discretionary spending by urban consumers. Real estate: Declining home sales and fewer new home launches further highlight the weakness in urban demand.
The Ministry attributes this slowdown to a combination of factors, including:
Softening consumer sentiment: Declining consumer sentiment led to a decline in spending. Adverse weather: Excessive rainfall is impacting footfall and consumer behavior. Seasonal Factors: Seasonal trends typically lead to fewer purchases during a given period, further reducing demand.
In addition to weak demand in urban areas, the report also highlights a slowdown in industrial production. Manufacturing output rose modestly by 1% in August, but early signs suggest a further slowdown in September compared to the solid growth observed during the summer. Factors contributing to this slowdown include the fall in global crude oil prices, which affected domestic refinery production, and the slowdown in the automobile sector, which reduced demand for steel and affected related industries. It will be done.
Expectations and cautious outlook for the Christmas season
The ministry continues to expect that the upcoming Christmas season and a potential increase in consumer sentiment may reinvigorate demand in urban areas. But early indicators suggest enthusiasm is slowing. The Reserve Bank of India’s October report further supports this cautious outlook, highlighting a slowdown in key indicators such as GST collections, bank credit growth and merchandise exports. This cautious outlook is further supported by the Reserve Bank of India’s October report highlighting a slowdown in key indicators such as Goods and Services Tax (GST) collections, bank credit growth and merchandise exports. Despite these headwinds, the ministry’s review cites recent RBI surveys showing gradual improvement in consumer confidence and a more optimistic outlook for the manufacturing sector. However, the review warns that the overall demand situation needs to be closely monitored.
While recent surveys show that consumer confidence is improving sequentially and the outlook for the manufacturing industry is becoming more optimistic, the ministry emphasizes the need to closely monitor the overall demand situation. are.
The report also highlights the potential risks posed by rising geopolitical tensions and deepening geoeconomic fragmentation. These external factors can indirectly impact the Indian economy through various channels.
Wealth implications: Increasing geopolitical tensions and economic uncertainty are likely to impact household wealth and, in turn, consumer spending and confidence. Market spillovers: High valuations in some developed countries could spill over into the Indian market, impacting sentiment around durable goods purchases.
Although local demand remains encouraging, the ministry’s economic survey highlights mixed economic indicators. Weakening urban consumption demand and slowing industrial production pose significant challenges to India’s economic growth trajectory. Policymakers need to closely monitor these trends and take appropriate measures to stimulate demand and ensure a sustainable economic recovery.
