Wednesday, 09 Oct, 2024
Source: Getty
The Finance Ministry expects higher capital and total expenditure later this year after Q1FY25 spending declined due to the Lok Sabha polls. April-June 2024 data reveals total expenditure and capex fell by 7.7% and 35% year-on-year, respectively.
In its July monthly economic report (MER), the finance ministry has maintained a positive outlook for the economy, holding its growth forecast steady at 6.5-7 per cent for the current financial year (2024-25/FY25). This optimistic stance comes in anticipation of the gross domestic product (GDP) figures for the April-June quarter (Q1), despite cautious signals from the Reserve Bank of India's consumer confidence and industrial outlook surveys. The report, released on August 22, stated that the current real GDP growth projection of 6.5-7 per cent for FY25, as detailed in the Economic Survey for 2023-24, "appears appropriate."
Additionally, the MER highlights several positive indicators, such as reservoirs being replenished despite an erratic monsoon. The Purchasing Managers’ Indices show continued expansion in the manufacturing and services sectors. Tax collections have increased, and bank credit is displaying healthy growth. Inflation has moderated, stock markets are at record highs, and Foreign Direct Investment (FDI) remains strong.
The finance ministry also highlighted the need to monitor both the consumer and industrial outlook surveys, which have shown a declining trend. The report noted that reduced optimism regarding the general economic situation, employment, and prices contributed to a moderation in the future expectations index of the consumer confidence survey in July 2024. Furthermore, the industrial outlook survey for the manufacturing sector, conducted by the central bank, indicated a drop in both the current assessment and expectation indices of business sentiment in August.
The report highlighted that headline retail inflation, based on the consumer price index (CPI), fell to 3.5 per cent in July, with no anticipated shocks. It noted a positive outlook for headline inflation due to moderate core inflation and favourable progress in the monsoon. Food inflation, particularly for vegetables, saw a significant decline, and cereal inflation also decreased. Although core inflation—excluding food and fuel—moderated to 3.3 per cent in July from 3.1 per cent in June, it is not expected to significantly impact the overall inflation outlook.
The finance ministry expects an increase in capital expenditure (capex) and total expenditure in the latter part of the year, following reduced spending in Q1FY25 due to the general election. According to the report, total expenditure and capex were lower by 7.7 percent and 35 percent year-on-year, respectively, during April-June 2024. "Capex is sustained at elevated levels, bolstering the nascent private investment cycle," the report noted.
The economic report highlighted a notable upswing in July 2024, reflecting strong and resilient business activity across various indicators. The month saw significant milestones, including substantial growth in goods and services tax (GST) collections and a sharp rise in e-way bill generation, indicating a broader increase in economic activity.
GST collections in the first four months of FY25 have surged due to a widened tax base and increased economic activity. This growth is reinforced by a double-digit rise in e-way bill generation, indicating sustained economic momentum. Manufacturing and services sectors have also shown strong performance, driven by robust demand and expanding capacity utilisation, with upcoming measures in the FY25 Union Budget expected to bolster these sectors further.
The report stated that, looking ahead, the measures introduced in the Union Budget FY25 for MSMEs, manufacturing, and services sectors are expected to provide a significant boost to these areas.
Regarding capital flows, Foreign Portfolio Investors (FPIs) have been net buyers since June 2024, reversing earlier trends. Net FDI inflows rose in the first three months of FY25, driven by higher gross inflows. As a result, foreign exchange reserves reached $675 billion by August 2, 2024, providing coverage for 11.6 months of imports.
