Indian Economy
Amid global headwinds, Indian economy shows some positives: NCAER Monthly Review
New Delhi/IBNS: Even in the face of global headwinds, some of the high-frequency indicators of the Indian economy have turned more benign and the nascent turnaround is evident in indicators like Purchasing Managers’ Index for manufacturing, GST collections and non-EV and EV sales, according to the Monthly Economic Review for February released by the National Council of Applied Economic Research (NCAER).
GST collections, gross and net, achieved robust double-digit growth of 12.3% and 10.9% respectively in January 2025, as compared to subdued growth of 7.3% and 3.3% in December 2024, said the Review.
PMI for manufacturing increased to 57.7 in January, signaling expansion while PMI for services remained at an elevated level of 56.5.
NCAER Director General Dr Poonam Gupta said, “Moderation in inflation (headline inflation to 4.3%) has opened up more policy space. The agriculture sector is also exhibiting much-needed resilience, which bodes well for both inflation control and rural push to the economy.”
As of February 4, Rabi sowing for the 2024-25 season reached 104% of the normal sown area while areas sown under rice and pulses reached 101.2% and 100.3% of the normal sown area respectively. Growth rate of bank credit, however, remained subdued at 11.2 % in December 2024, compared to 20.2 % in December 2023.
Credit from banks to NBFCs too decelerated from 15% in December 2023 to 6.7% in December 2024.
“Credit from NBFCs being important sources of consumer finance and finance for the SME sector, such subdued credit growth rates could further weigh on the economy’s growth rate,” said Dr Gupta.
In this context, she welcomed the recent restoration of risk weight on the exposures of Scheduled Commercial Banks to NBFCs. The NCAER DG said another factor that needs to be monitored is the continued outflow of FII flows.
“Empirical studies show that FII flows are driven more by external factors than by domestic ones, and hence are quite volatile in nature. As in the past, the current phase of reversal of FII flows from India is a global phenomenon and is associated with reversals from many other emerging markets,” she said.
Dr Gupta said that in order to attract more stable external funding, it would be desirable to prioritize FDI over FII inflows. Besides ensuring stable financing, FDI flows enable more direct access to global technology and markets.
“Perhaps it would, therefore, make sense to accord priority to FDI inflows from the US in the ongoing discussions with the Trump Administration,” she said.
Net FII inflows were negative in three of the last four years: (-) $9.5 billion in 2021-22; (-) $5.5 billion in 2022-23; $41 billion in 2023-24; and (-) $1.3 billion till end-February this fiscal year.
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