Union Finance Ministry highlights softer urban demand, factory output

Despite these concerns, it maintained that the country’s GDP is expected to grow between 6.5 percent and 7 percent in the 2024-25 fiscal year.

While rural demand has shown positive growth due to a favourable monsoon, the Ministry’s monthly economic review pointed out signs of a dip in urban demand during the first half of FY25.

The report, published by the Department of Economic Affairs, noted sluggish growth in urban sales of fast-moving consumer goods, a 2.3 percent drop in automobile sales during this period, and a decline in housing sales and new launches in the second quarter (Q2).

The review attributed these trends to factors such as weaker consumer sentiment, reduced footfall due to heavy rainfall, and seasonal patterns that discourage new purchases.

The Ministry had first flagged these concerns in its September report, identifying emerging strains in specific sectors.

Although the Ministry remains optimistic about further improvements in rural demand, it expressed caution regarding broader consumption trends, emphasizing that underlying demand conditions should be closely monitored.

It suggested that the ongoing festive season and a potential rise in consumer confidence could boost urban demand, but noted that early indications were not very encouraging.

The review also mentioned that manufacturing growth was only 1 percent in August, with a noticeable slowdown in September compared to the robust performance earlier in the summer.

The Ministry linked this to factors such as lower global oil prices, increased oil imports affecting refinery output, and weaker growth in the automotive sector impacting steel production.

These observations come amid a lackluster Q2 earnings season for Indian corporations and the Reserve Bank of India’s October bulletin, which highlighted a deceleration in key indicators like GST collections, bank credit growth, and merchandise exports.

Despite these challenges, the Ministry cited recent RBI surveys indicating a “sequential improvement in consumer confidence” and growing optimism among manufacturers.

While it described India’s economic performance in the first half of this fiscal year as “satisfactory,” the review warned of potential risks from escalating geopolitical conflicts, rising global economic fragmentation, and high valuations in some advanced economies.

These external factors could impact India through wealth effects, affecting household sentiment and spending on durable goods.