ECONOMIC SURVEY
CHAPTER 1: GLOBAL ECONOMIC CONDITION & DOMESTIC ECONOMIC CONDITION [1/2]
Agriculture:
a. H1 FY 25 Growth: Agriculture remained strong in the first half of FY25, with Q2 growing by 3.5%, showing improvement over the previous four quarters.
b. Kharif Production: Total crop production is estimated at a record 1647.05 lakh metric tonnes, higher by 5.7% compared to 2023-24 and 8.2% higher than the average of the past five years.
c. Monsoon Impact: Normal rainfall in 2024 improved water levels in reservoirs, ensuring enough water for farming during the next crop season. As of January 2025, more wheat and gram were planted compared to the previous year.
- Manufacturing:
- H1 F Y25 Growth: The industrial sector grew by 6% in the first half of FY25, with Q1 seeing strong growth of 8.3%. However, growth slowed in Q2 due to weak global demand, seasonal factors, and festival timing.
- Recovery Expectations: Despite challenges, India’s manufacturing growth is the fastest. Expectations of recovery in sectors like cement, iron, and steel after the rainy season are high, with mining and electricity expected to normalize after rain-related disruptions.
Geopolitical Uncertainties:
a. Risks: Political risks are high due to ongoing conflicts, affecting global economic outlooks.
b. Trade Disruptions: Disruptions in trade through important shipping routes like the Suez Canal have led to higher shipping costs, affecting global trade.
c. Problems in global shipping, like delays in the Red Sea and Panama Canal, have pushed up goods prices and pressured global supply chains. This is shown by higher levels of the Global Supply Chain Pressure Index (GSCPI) in the quarter ending September 2024.
d. Trade Uncertainty: The World Trade Uncertainty Index has risen, driven by trade tensions and policy changes in major economies. The number of trade restrictions within G20 countries continues to grow, affecting 12.7% of G20 imports, posing risks to global economic growth.
- Services Sector Performance:
- Growth in H1 FY25: The services sector did well in the first half of FY25, growing by 7.1%.
- Sub-Sectors: All parts of the services sector have done well.
- High-Frequency Indicators (HFIs): Services PMI has been in the growth zone, supported by new orders, higher output, better sales, and more jobs.
- Hospitality Sector: Did well with hotel occupancy rates similar to the previous year. Average daily rates and revenue per room increased due to more business and leisure travel.
- Air Cargo and Port Traffic: Air cargo activity grew strongly, while port traffic remained stable.
- Information Technology (IT): IT companies did better than the previous quarter.
- GDP Growth:
- Q1 and Q2 FY 25: India’s GDP grew by 6.7% in Q1 and 5.4% in Q2 FY25, resulting in a real GDP growth of 6.0% in the first half of the current fiscal year.
- Private Final Consumption Expenditure (PFCE): Grew by 6.7% YoY in H1 FY 25. Rural demand contributed significantly to private spending growth, as shown by sales of two-wheelers, three-wheelers, and tractors.
- Rural Economic Conditions: NABARD’s survey reported that 78.5% of rural households increased their spending over the last year.
- Urban Demand: Mixed trends with slower growth in passenger vehicle sales but steady growth in air travel.
Gross Fixed Capital Formation (GFCF):
a. Growth in H1 FY25: Slowed from 10.1% in H1 FY24 to 6.4% in H1 FY25.
b. Capital Expenditure: Slowed across different levels of government due to elections and weak private investment.
c. Residential Investment: Slowed in Q2 FY25, showing market normalization after a period of strong performance.
d. Green Shoots: Government spending on infrastructure increased by 8.2% in July – November 2024. RBI’s survey shows capacity utilization above the long-term average.
Trade and Remittances:
a. Merchandise Exports: Grew by 1.6% YoY in April – December 2024, with non-petroleum exports up by 7.1%.
b. Merchandise Imports: Rose by 5.2%, driven by non-oil, non-gold imports and gold imports.
c. Services Trade Surplus: Helped balance the overall trade deficit. India has the 7th-largest share in global services exports.
d. Remittances: India received the most money from abroad, driven by job creation in developed countries. (129 bn USD)
e. Current Account Deficit (CAD): Contained at 1.2% of GDP in Q2 FY 25.
Fiscal Management:
a. General Government Dis-savings: Better control has helped macro-stability.
b. Union Government: Improved fiscal discipline with a strong focus on capital expenditure.
c. State Finances: Tax revenue of the central government and states’ own tax revenue increased at a similar pace. Increased tax sharing by the central government improved the overall tax revenue position of state governments.
Inflation Trends:
d. Retail Headline Inflation: Dropped from 5.4% in FY24 to 4.9% in April – December 2024.
e. Core Inflation: Dropped by 0.9 percentage points between FY24 and April – December 2024.
f. Food Inflation: Increased from 7.5% in FY24 to 8.4% in FY25 (April-December), driven by vegetables and pulses.
- Financial Sector Prospects:
- Credit Disbursal: Growing strongly but has recently slowed.
- Stability Indicators: Declining bad loans, strong capital buffers, and good operational performance. Bad loans declined to a 12-year low of 2.6%.
- Capital-to-Risk-Weighted Assets Ratio (CRAR): Stands at 16.7% as of September 2024.
- Profitability: Banks’ profits surged by 22.2% YoY in H1 FY25.
- Labour Market:
- Unemployment Rate: Dropped from 6% in 2017-18 to 3.2% in 2023-24.
- Labour Force Participation Rate (LFPR) and Worker-to-Population Ratio (WPR): Both increased.
- Formal Sector Growth: Net EPFO subscriptions more than doubled from 61 lakh in FY19 to 131 lakh in FY24.
- Technological Developments: AI integration offers chances to boost productivity and create jobs.
Outlook and Way Forward:
a. Growth Trajectory: Steady but varies by region. Services sector drives global growth.
b. Inflationary Pressures: Easing globally but risks remain due to political issues.
c. Monetary Policies: More supportive but varies by region.
d. Domestic Outlook:
i. Rural Demand: Recovering, which is good for spending.
ii. Investment Activity: Expected to increase, supported by higher government spending and better business expectations.
iii. Food Inflation: Likely to ease in Q4 FY25 with seasonal drops in vegetable prices and crop arrivals.
iv. Growth Prospects: Expected growth in FY26 between 6.3% and 6.8%.
CONCLUSION
The global economic landscape in 2024 is characterized by moderate growth, influenced by geopolitical tensions, supply chain disruptions, and climate-related shocks. Advanced economies have shown resilience, while Asia faces challenges due to domestic issues and weak global demand. The services sector remains a bright spot, with manufacturing showing signs of recovery. Inflation is easing, but risks persist due to ongoing geopolitical tensions and commodity price volatility.
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