As Rural Growth Sees A Pick-Up, Urban Growth May Lag In FY25

While rural consumption is showing signs of recovery, urban consumption could slacken in the ongoing fiscal.

India's GDP growth for the January-March quarter, and for the full fiscal, continued to surprise on the upside. Economic growth, too, continues to print stronger than expected. For the full year, GDP is estimated to have risen by 8.2%, while GVA grew by 7.2%. For FY25, high-frequency indicators show resilient growth, but adverse base effects and continued consumption weakness could likely weigh on growth.

An above-normal monsoon and modest improvement in rural demand could add to the growth prospects, while the lagged impact of monetary policy can weigh on urban growth.

Private consumption is expected to improve in FY25, with growth in the agricultural sector likely to surprise, led by the low base effect and the monsoon effect, said Dharmakirti Joshi, chief economist at Crisil.

While urban consumption will be somewhat lower because of a hit from interest rates, rural consumption won't take as much of a hit because of lower credit penetration, he explained.

Credit growth is seeing some signs of plateauing. Non-food credit growth slowed to 15.2% annually in April versus 16.3% in March.

Urban growth is flattening, while rural segment may be poised for gradual recovery, according to Teresa John, chief economist at Nirmal Bang Institutional Equities.

She cited the uptick in CMIE's urban unemployment data. While unemployment rate in rural India was steady, tractor sales rose on a sequential basis by 20.7%, said John. On an annual basis, they still saw a decline of 3%.

Urban unemployment rose to 9.8% in April from 8.2% in March, according to the Centre for Monitoring Indian Economy. Rural unemployment was largely steady at 7.3%.

Two-wheeler sales were up by 30.8% annually in April and grew by 17.7%, sequentially. Passenger vehicle sales growth was muted at 1.3% in April and was down 8.8% sequentially, suggesting some slack in urban growth, she said.

• Manufacturing PMI eased to a three-month low of 57.5 in May from 58.8 in April, signaling slower growth, attributed to heatwaves and higher production costs. Eight core industries grew by 6.2% in April, as compared with 6% in March. However, on a sequential basis, the index declined by 8% in April, after rising by 10.7% in March.

• Exports grew by 1.1% annually in April, after a 0.7% decrease in March. Non-oil, non-gold imports were up by 0.5% YoY in April, after a 2.7% annual decline in March. The moderation in capital goods import may be reflecting a temporary slowdown in capex, said John. However, overall sluggish non-oil, non-gold imports indicate some slack in overseas and domestic demand.

• Traffic indicators were mostly sluggish, said John. Passenger air traffic growth moderated to 2.4% annually in April versus 3.7% in March. Port traffic growth stood at 1.3% annually in April versus 3.6% in March; it was down by 9.8% month-on-month. Rail freight traffic growth was muted at 1.4% YoY in April.