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India Budget: Finance Minister Nirmala Sitharaman will likely announce the Union Budget 2025 on February 1, 2025. In this report, we discuss the key economic indicators that tell you about the health of a country’s economy that aims to become the world’s third largest by 2030.“World’s fastest growing advanced economy” India has become synonymous with this statement in recent years. Policies announced by Sitharaman in the Union Budget would be critical as the country attempts to continue on its growth path and change the game for better as the Budget comes at a tim when India’s growth is seen to hit a four-year low in this fiscal year.
All you need to know about India’s GDP
Gross Domestic Product (GDP) is a key economic measure that represents the total value of goods and services produced within a country’s borders over a specific period, serving as a crucial indicator of economic health, productivity, and living standards.
India’s GDP is expected to grow by 6.4% in FY25, marking a four-year low and a sharp drop from last year’s 8.2% growth, according to the government’s first advance estimates.
India’s Q2 GDP growth slowed to 5.4%, falling short of expectations and raising concerns among economists about the country’s waning economic momentum. The growth rate, a seven-quarter low, marked a sharp drop from 8.1% in the same period last year and 6.7% in the previous quarter.
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Declining wages, shrinking corporate profits, and stubborn inflation are key factors driving the slowdown in economic activity.
Indian economy grew at 8.2 per cent in FY24, between April 2023 and March 2024. In FY23, India’s GDP grew 7 per cent. GDP grew 6% in the first half of FY25.
While the government attributed the dismal second quarter growth print as a blip, experts have expressed concerns over consumption demand while growth of consumption expenditure has been a sore point in recent quarters. Consumption refers to the total spending by Indian households and individuals on goods and services for personal use. This expenditure includes cars, appliances, food, clothing, healthcare, entertainment and the likes.
Owing to the slowdown, RBI sharply cut the GDP growth projection to 6.6 per cent from the earlier level of 7.2 per cent.
Also Read: A close look at India’s GDP growth rate before Sitharaman’s key announcements
All you need to know about India’s inflation
In India, retail inflation is measured using the consumer price index, or CPI.
The consumer price index showed moderation during the first half of the year, staying within the RBI’s comfort zone. Notably, inflation remained below the central bank’s 4% target in July and August.
However, October saw inflation spike to a 14-month high of 6.21%, breaching the RBI’s upper limit. Food prices, accounting for nearly half of the consumer price basket, surged by 10.87% year-on-year.
In November, inflation eased slightly, with the latest print standing at 5.48%.
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Core CPI inflation in November was at 3.6 per cent, according to DBS Bank. Core inflation is an essential measure because while calculating it, experts remove volatile elements like food and energy prices, which can fluctuate widely due to seasonal factors or geopolitical events. This gives an overall stable reading of price rises in an economy.
For Reserve Bank of India, food inflation remains a big worry as it forms close to 50 per cent of the retail inflation calculation. RBI wants inflation to come down to its target of 4 per cent. The Reserve Bank of India (RBI) warns that inflation in India could face upward pressure from rising food prices, particularly vegetables and fruits, driven by the increasing frequency of adverse climate events. Adding to the uncertainty are fluctuations in global crude oil prices, volatility in financial markets, and a gradual rise in non-energy commodity prices.
The central bank revised its inflation forecast for FY25 to 4.8%, up from the previous estimate of 4.5%.
Also Read: A close look at India’s Inflation trends
All you need to know about India’s fiscal deficit
Fiscal deficit is the difference between the government’s total expenditure and its total revenue in any given year. It indicates how much the government needs to borrow to meet its expenditure needs, influencing economic stability and growth
Economists note that Indian government finances are currently quite robust. It is important for any country to spend on projects that can make them more money later on, rather than one-time expenditures that will not give the government any sort of monetary returns.
India’s fiscal deficit for the first eight months of this fiscal year through November stood at 8.47 lakh crore rupees, or 52.5% of annual estimates.
ET Online
India’s fiscal deficit had increased to 9.2 per cent of GDP in FY21 due to the Covid-19 pandemic. In recent trends, India’s government has seen a gradual decline in this figure, which is now down to 5.6 per cent in FY24. India wants to reduce this to 4.5 per cent by FY26. A favourable fiscal deficit management by a country is preferred by global investors as it lends the country more stability.
Additionally, the ratio of revenue deficit to fiscal deficit has improved significantly, decreasing from approximately 80 per cent in FY21 to 46.3 per cent in FY24.
Over the past four years, capital expenditure growth has averaged 29.7 per cent, driven by significant investments by the Modi government. This robust investment drive has been a key factor in India’s strong economic performance amidst ongoing global challenges.
However, some economists believe the Centre’s capital expenditure (capex) is projected to fall short of its target by ₹1.5 trillion, potentially affecting long-term infrastructure development. Simultaneously, revenue expenditure is likely to exceed budget estimates due to additional allocations under the first supplementary grant.
Also Read: Will Nirmala Sitharaman be able to meet fiscal deficit targets amid economic challenges?
All you need to know about India’s import, export and trade deficit
Trade deficit is the difference between the value of goods and services a country imports and what it exports, showing whether a nation buys more from other countries than it sells to them.
Having a lower trade deficit offers several advantages to a country. It promotes economic stability by reducing reliance on foreign borrowing for imports, which in turn can stabilize the overall economy. A stronger domestic currency often accompanies a lower trade deficit, enhancing purchasing power and economic resilience.
India’s merchandise trade deficit in November widened to $32.84 billion from $27.1 billion in October, as the nation’s import bill ballooned and exports declined. India’s merchandise exports increased by 2.17% year-on-year in the April to November period to $32.11 billion, while imports rose at a higher pace of 8.35%, widening the country’s trade deficit.
The government had earlier reported in December last year that India’s trade deficit widened to an all-time high of $37.84 billion. The data has now been revised as the government cut its November gold import estimates by an unprecedented $5 billion, the largest revision for any commodity in history.
India aims to clock $2 trillion goods and services exports by 2030. India’s goods and services exports were $778 billion in FY24.
All you need to know about India’s GST & tax collections
In India, direct taxes include personal income tax and corporation tax. The primary source of revenue for the government comes from central taxes. Direct taxes have consistently made a larger contribution than indirect taxes in recent years, significantly influencing total revenue receipts.
Indirect taxes include union excise duties, arrears of service tax, customs duty, and GST (comprising CGST, UTGST, IGST and GST compensation cess). GST stands for Goods and Services Tax. It is a comprehensive indirect tax levied on the supply of goods and services across India. Introduced in 2017, GST replaced multiple indirect taxes that varied across states, aiming to create a unified tax structure.
Net direct tax collections for the current fiscal year have shown strong growth, increasing by 16.45% year-on-year to surpass Rs 15.82 lakh crore. GST collections too have demonstrated remarkable resilience this year, with the November figure touching ₹1.82 lakh crore, setting a new monthly record.
ET Online
India’s GST collections are set to end the fiscal year on a high note, fueled by a rebound in economic activity, especially in rural regions, during the latter half of the year. This strong tax revenue will be crucial in enabling Finance Minister Nirmala Sitharaman to adhere to the fiscal glide path while prioritizing capital expenditure (capex).
According to the CGA, India’s gross tax revenues grew by 13.5 per cent in FY24, driven by a 17.6 per cent increase in direct taxes and an 8.3 per cent rise in indirect taxes.
The Central government’s gross tax revenue has increased from 10 per cent of GDP in FY15 to 11.7 per cent in FY24. This is still lower than in FY08 when the Manmohan Singh-led UPA government collected 12.1 per cent GTR, a record high.
In FY24, GST collections reached Rs 20.18 lakh crore.
Also Read: Will India’s robust GST kitty help Sitharaman stick to fiscal glide path?
All you need to know about India’s manufacturing and services
Manufacturing and services remain two key contributors to India’s economy. Manufacturing and services are measured by various indicators, one prominent tool being PMI data.
India’s manufacturing activity slowed to its weakest growth in 12 months in December, as rising competition and price pressures impacted performance.
The HSBC Purchasing Managers’ Index (PMI), compiled by S&P Global, dipped slightly to 56.4 in December from 56.5 in November. However, the 2024 average PMI rose to 57.5, up from 56.8 in 2023, indicating stronger overall annual performance.
ET Online
India’s services activity rose to a four-month high of 59.3 in December, up from 58.4 in November, driven by strong demand that fueled business expansion and output growth, according to the HSBC PMI survey.
Also Read: India’s manufacturing, services sector in focus amid budget buzz
The Indian government has been taking substantial measures for decades to ensure that India reaches its true manufacturing prowess. Post Covid-19, just as global companies were looking to shift their manufacturing units from China in an attempt to diversify options, India has emerged as a robust alternative. The Modi government has deployed schemes like the Production-linked Incentive (PLI) to invite global companies to manufacture in India, across a host of sectors.
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