Finance Ministry flags softer urban demand, factory output

Finance Ministry acknowledges softening consumer sentiments and faltering demand in urban India, maintaining 6.5-7% growth projection for 2024-25.

The Finance Ministry on Monday (October 28, 2024) acknowledged emerging concerns of softening consumer sentiments and faltering demand, particularly in urban India, as well as a moderation in industrial momentum in recent months, even as it maintained that the economy will grow between 6.5% and 7% through 2024-25.

Contrary to rural demand that has perked up with a favourable monsoon, the Ministry’s latest monthly economic review pointed to evidence of a slowdown in urban demand as reflected in the performance of various indicators during the first half of FY25.

The Department of Economic Affairs’ publication cited the drop in volume growth in urban sales of fast moving consumer goods, the 2.3% contraction in automobile sales in the first half of this year “mainly due to the lower sales in the second quarter [Q2]”, and a decline in housing sales and launches in Q2.

These trends “may be largely explained by softening consumer sentiments, limited footfall due to above-normal rainfall, and seasonal periods during which people tend to refrain from new purchases,” noted the review, whose last iteration in September had first flagged concerns about ‘incipient signs of strains in certain sectors’.

While the Ministry is hopeful of rural demand picking up further, it did not appear as sanguine about overall consumption trends, stating that “underlying demand conditions bear watching”. “Going forward, the ongoing festive season and improvement in consumer sentiments may boost urban consumer demand. However, early indications were not particularly promising,” it added.

The review also noted that manufacturing grew just 1% in August and the momentum in the sector “seems to have softened in September from the very strong growth in the summer months”, reasoning that lower international oil prices and increased oil imports may have influenced domestic refinery output, while steel output was likely affected by moderation in automobiles’ growth.

The Ministry’s comments about the pain points in the economy assume significance, coming amid a tepid Q2 results season for corporate India and soon after the Reserve Bank of India (RBI) October bulletin referred to slackening momentum in indicators such as Goods and Services Tax (GST) collections, bank credit growth and merchandise export.