Market Review
Global economic activity moderated due to slower growth in both the US and China. The US GDP growth for Q12024 was revised down, along with consumer spending estimates. Additionally, the US labor market, while still tight, showed signs of softening with lower-than-expected payroll additions, an inch up in unemployment rate, and fewer job openings. However, US manufacturing and housing sector stabilized to a certain extent while services sector remained resilient. In the Euro Area, both the manufacturing and services sectors improved month-onmonth reflected in recent PMIs data. China's economic activity presented a mixed picture, with improvements in international trade along with industrial production & profits, but ongoing challenges in the real estate sector remains. Chinese authorities are implementing measures to support the real estate sector, including setting up a lending facility to reduce housing inventory.
Inflation in most Advanced Economies (AEs) stayed within expected ranges. In China, inflation remained benign, with PPI remaining in negative territory while CPI was marginally positive. Most major central banks maintained the status quo in their monetary policies. However, in June 2024, European Central Banks and Bank of Canada reduced their policy rate by 25 bps.
Q4FY24 GDP Growth surpass expectations, GVA largely in line: India’s GDP growth was recorded at 7.8% year-over-year in Q4FY24, significantly exceeding consensus expectations (~7%). This growth was driven by continued investment growth, spurred by government infrastructure spending, and strong real estate activity. Net exports of goods and services also improved as exports grew faster than imports. Private consumption growth remained steady, similar to the previous quarter.
Gross Value Added (GVA) grew by 6.3% YOY. This slower growth was due to moderation in services activity, particularly in the trade and hospitality sectors. However, the industry sector, despite growing at a slower rate than last quarter, remained healthy due to strength in manufacturing and construction. Agricultural growth remained subdued. The notable difference between GDP (GVA + net indirect taxes) and GVA growth rates was primarily due to a ~22% rise in net indirect taxes (indirect taxes minus subsidies).
| Quarter ended (YoY, %) | Dec-23 | Mar-24 | Quarter ended (YoY, %) | Dec-23 | Mar-24 |
|---|---|---|---|---|---|
| GDP | 8.6% | 7.8% | GVA | 6.8% | 6.3% |
| Private Consumption | 4.0% | 4.0% | Agriculture, Forestry and Fishing | 0.4% | 0.6% |
| Government Consumption | -3.2% | 0.9% | Industry | 10.5% | 8.4% |
| Gross Capital Formation | 11.5% | 8.0% | Manufacturing | 11.5% | 11.5% |
| Gross Fixed capital formation | 9.7% | 6.5% | Construction | 9.6% | 8.7% |
| Services | 7.1% | 6.7% | |||
| Exports | 3.4% | 8.1% | Trade, Hotels, Transport, etc. | 7.0% | 5.1% |
| Imports | 8.7% | 8.3% | PADO | 7.5% | 7.8% |
Source : CMIE
Indian economic activity remained resilient: After a strong performance in April 2024, growth in high-frequency indicators remained healthy in May 2024, except for the auto sector. Both the manufacturing and services PMIs indicated steady growth. Additionally, gross GST collections and digital spending grew at a steady pace, while the unemployment rate declined. Power demand increased significantly due to rising temperatures across India. However, retail registrations for both two-wheelers (2W) and four-wheelers (4W) slowed down significantly after strong growth in April 2024. The commercial vehicle (CV) and tractor segments continued to be subdued.
| Indicators | Units | Dec-23 | Jan-24 | Feb-24 | Mar-24 | Apr-24 | May-24 |
|---|---|---|---|---|---|---|---|
| Retail registration - Auto@ | |||||||
| 2W | YoY, % | 27.5 | 15.4 | 13.6 | 5.7 | 33.1 | 2.4 |
| PV | 2.1 | 16.0 | 14.8 | -4.3 | 15.7 | -0.2 | |
| MHCV | -0.4 | 2.3 | -3.4 | -15.7 | -5.6 | -3.9 | |
| LCV | -4.4 | -4.0 | -1.4 | -7.8 | -2.0 | 1.4 | |
| Tractors | 1.4 | 23.9 | 12.8 | -1.8 | 2.5 | -1.0 | |
| Gross GST Collection | 10.3 | 11.7 | 12.5 | 11.5 | 12.4 | 10.0 | |
| Average E-Way bill generated | 13.2 | 16.4 | 14.8 | 13.9 | 14.5 | ||
| Power demand | 1.6 | 6.1 | 4.7 | 9.1 | 10.5 | 15.3 | |
| Digital Spending & | 35.3 | 35.5 | 40.6 | 33.5 | 32.6 | 31.6 | |
| Railway Freight Tonnage | 6.4 | 6.4 | 10.1 | 9.5 | 1.4 | 3.7 | |
| Railway Freight Earnings | 3.6 | 4.1 | 9.0 | NA | 1.3 | 3.8 | |
| Manufacturing PMI^ | Index | 54.9 | 56.5 | 56.9 | 59.1 | 58.8 | 57.5 |
| Services PMI^ | Index | 59.0 | 61.8 | 60.6 | 61.2 | 60.8 | 60.2 |
| Unemployment | % | 8.7 | 7.4 | 8.1 | 7.4 | 8.1 | 7.0 |
Source: www.gstn.org.in, www.icegate.gov.in, CMIE, PIB, RBI, www.vaahan.parivahan.gov.in, www.posoco.in
^Number >50 reflects expansions and number <50 reflects contraction compared to previous month. @ - figures are preliminary data and are subject to revision. &- Sum of UPI+IMPS spending
India's growth in FY25 is expected to remain steady, though slightly lower than FY24, supported by robust industrial and services sectors along with resilient urban consumption. While rural recovery remains mixed, there is optimism due to the expectation of a normal monsoon.
Central government finances in a comfortable position: FY24 fiscal deficit narrowed to 5.6%, lower than 5.8% in the revised estimates (FY24RE). This improvement was driven by better-than-expected revenue collection from income taxes and customs duties. Non-tax revenues also exceeded expectations, primarily due to higher interest and dividend income. However, these gains were partly offset by higher-thananticipated transfers to states. On the spending side, while capital expenditure was largely in line with FY24RE, revenue spending was lower than expected.
The fiscal deficit (as % of GDP) in April 2024 (first month of FY25) was slightly higher than April last year. Rise in spending growth outpaced the revenue growth.
| For the month | ||||||
|---|---|---|---|---|---|---|
| INR trillion | FY23 | FY24 | Change (YoY) | Apr-23 | Apr-24 | Change (YoY) |
| Gross tax revenue | 30,538 | 34,648 | 13.5% | 2.181 | 2,550 | 16.9% |
| Total Direct Tax | 16,341 | 19,220 | 17.6% | 1,206 | 1,351 | 12.1% |
| Total Indirect Tax | 14,197 | 15,428 | 8.7% | 975 | 1,199 | 22.9% |
| Less: Share of States & others | 9,564 | 11,383 | 19.0% | 592 | 700 | 18.2% |
| Net Tax collection | 20,974 | 23,265 | 10.9% | 1,589 | 1,850 | 16.4% |
| Non-Tax Revenue | 2,862 | 4,019 | 40.4% | 110 | 273 | 149.1% |
| Total Revenue Receipts | 23,835 | 27,284 | 14.5% | 1,699 | 2,123 | 25.0% |
| Total Capital Receipts | 722 | 605 | -16.2% | 6 | 10 | 62.1% |
| Total Receipts | 24,557 | 27,889 | 13.6% | 1,705 | 2,133 | 25.1% |
| Total Revenue Expenditures | 34,525 | 34,940 | 1.2% | 2,256 | 3,242 | 43.7% |
| Total Capital Expenditures | 7,363 | 9,485 | 28.8% | 785 | 992 | 26.5% |
| Total Expenditures | 41,888 | 44,425 | 6.1% | 3,041 | 4,235 | 39.3% |
| Gross Fiscal Deficit | -17,331 | -16,537 | -4.6% | -1,336 | -2,101 | 57.3% |
| Fiscal Deficit as % of GDP | -6.4% | -5.6% | -0.5% | -0.7% | ||
Source: CMIE
In recent developments, against the expectations, the incumbent government won the general election 2024 with a lower majority than last time. This may have an impact on the future policy decisions including pace of fiscal consolidation. Thus, FY25 full budget likely to be presented in July 2024 is one of the key event to look out for medium term direction of fiscal policy. Significantly higher than expected RBI dividend of INR 2.1 trillion (~0.7% of GDP) can provide the government with some flexibility to increase spending while still adhering to its fiscal consolidation path.
Retail inflation stable, likely to ease in coming quarters: In April, the CPI remained largely unchanged from the previous month. Food inflation continued to be high due to elevated prices of vegetables, pulses, cereals, spices, and sugar. This was partly offset by lower fuel and light inflation, driven by a reduction in LPG prices. Core CPI remained relatively steady, with benign inflation in housing goods and services, health, clothing and footwear, and recreation and amusement items.
| YoY, % | Mar-24 | Apr-24 | Change in % |
|---|---|---|---|
| CPI | 4.85 | 4.83 | -0.02 |
| Food & Beverages | 7.74 | 7.87 | 0.13 |
| Fuel and Light | -3.35 | -4.24 | -0.89 |
| Housing | 2.71 | 2.68 | -0.03 |
| Transportation & communication | 1.52 | 1.09 | -0.43 |
| Core CPI@ | 3.93 | 3.97 | 0.04 |
Source: CMIE; @-CPI excluding food, fuel, transportation & housing
CPI is expected to decline over the coming quarters aided by favorable base effects, modest input price pressure, arrival of new crops easing food inflation and sluggish core CPI momentum.
Trade Deficit widens, likely to remain rangebound in the near term: In line with the seasonal trend, the trade deficit rose in April 2024. The widening was mainly due to a higher non-oil, non-gold (NONG) deficit. NONG exports fell due to declines in engineering goods, chemicals, electronics, and textiles. This was partly offset by lower imports of machinery items, project goods, electronics, and transport equipment. Gold imports increased due to rising gold prices, which was partially offset by a decrease in net oil imports.
| Amount in USD billion | Mar-24 | Apr-24 | Change |
|---|---|---|---|
| Trade Deficit / (Surplus) | 15.6 | 19.1 | 22.5% |
| Net Oil Imports | 11.8 | 9.8 | -16.8% |
| Net Gold^ Imports | 2.2 | 2.7 | 19.8% |
| Net NONG* imports | 1.5 | 6.6 | 327.5% |
Source: Ministry of Commerce; ^ Net Gold includes gold, silver and pearls precious & semiprecious stones adjusted for gems and jewellery exports.
*NONG refers to Non-Oil Non Gold (as defined above) imports/exports
Trade deficit is likely to remain in similar range in the coming quarters as the oil prices remain range bound. Rise in commodity prices in recent months poses a risk of deficit widening
Commodity prices: Most industrial commodity prices fluctuated within a range during the month, ending marginally higher on a month-onmonth basis. However, Brent crude oil prices decreased as geopolitical tensions in the Middle East seemed to have been contained.
| Market price (USD)* | Mar-25 (YoY, %)^ | FYTD25 (%)& | |
|---|---|---|---|
| Brent Crude (per barrel) | 81.6 | (7.1) | (6.7) |
| Gold (per ounce) | 2,327 | 1.8 | 4.4 |
| Steel (per tonne) | 535 | 0.9 | 4.9 |
| Zinc (per tonne) | 2,995 | 2.4 | 25.2 |
| Copper (per tonne) | 9,985 | 0.1 | 14.4 |
| Aluminium (per tonne) | 2,607 | 0.9 | 13.6 |
| Lead (per tonne) | 2,246 | 2.8 | 14.3 |
Source: Bloomberg; *Market prices as on May 31, 2024. ^M-o-M change. & - Change in FYTD25
Summary and Conclusion:
Global economic activity remains mixed with some indicators pointing at growth sustaining while others suggesting some signs of weakness building up / persisting in both the US and China. India's growth trajectory remains stable, supported by robust urban consumption and the resilience of the industrial and service sectors. However, the rural economic outlook is uncertain, characterized by contrasting trends such as healthy growth in two-wheeler sales alongside modest tractor sales and rural wages. Government-driven capital expenditure is bolstering investment activity, while the residential real estate market also demonstrates resilience. Although private corporate capital expenditure is relatively subdued, favourable factors including low leverage, increasing capacity utilization, consistent corporate profitability, and a robust banking sector balance sheet indicate potential for improvement. The external sector exhibits strength, with expectations of steady performance in the current account and a surplus in the Balance of Payments. Significant rise in geopolitical tensions disrupting supply chains, acceleration in monetary policy tightening, slowdown in pace of domestic reforms due to coalition government, etc. are key near-term risks.
Looking ahead, the medium-term outlook for India's economy appears promising. This optimism is fuelled by favourable government policies, the advantages offered by Production-Linked Incentive schemes, opportunities arising from changes in the global supply chain, enhanced infrastructure investments, the potential of resurgence in private sector capex, and the enduring robustness of personal consumption.
