India's fiscal deficit for the first two months of FY25 has plummeted to its lowest level in nearly three decades, standing at 3.1% of the budgeted estimate. This marks a significant improvement from the 11.8% recorded during the same period last year. The dramatic reduction is primarily attributed to the Reserve Bank of India's surplus transfer and strong collections from personal income taxes and the Goods and Services Tax (GST). Total government expenditure remained steady at INR 6.2 lakh crore, with a notable increase in revenue expenditure (+4.7% YoY) counterbalanced by a decline in capital expenditure (-14.4% YoY).
In May 2024, bank credit grew robustly by 19.8% year-over-year, driven by a surge in personal loans (28.7% YoY) and a strong recovery in industrial credit, which reached an 18-month high of 9.4% YoY. This expansion in credit reflects the resilience of consumer demand and the industrial sector's recovery. However, deposit growth lagged behind at 14% YoY, resulting in the credit-deposit (C-D) ratio edging up to around 80%.
Monsoon activity until late July showed overall excess rainfall of 3% above the long-period average. However, this figure conceals significant regional disparities. The southern and central regions experienced excess rainfall, while the northern and eastern regions faced deficits exceeding 15%. Despite this uneven distribution, overall sowing activity for the Kharif season was 2.3% higher than the previous year, although reservoir levels remained lower than the same period last year.
The International Monetary Fund (IMF) World Economic Outlook (WEO) highlighted a persistent momentum in global economic activity amid stubborn inflation. The IMF revised India's economic growth forecast upwards by 20 basis points to 7% for 2024. Meanwhile, China's growth projections were increased by 40 basis points for both 2024 and 2025. Conversely, the US faced a downward revision of 10 basis points for 2024 due to an unexpected slowdown in the first quarter. The IMF noted that inflation in the services sector remains persistent, posing a challenge to disinflation efforts and raising the likelihood of prolonged higher interest rates.
The Reserve Bank of India's (RBI) Financial Stability Report (FSR) underscored the continued consolidation of the financial sector, marked by improved asset quality, robust credit expansion, and strong profitability. The Gross Non-Performing Assets (GNPA) ratio of all Scheduled Commercial Banks (SCBs) fell to a 12-year low of 2.8% in March 2024 and is projected to improve further to 2.5% by March 2025. The Capital to Risk-weighted Assets Ratio (CRAR) of SCBs reached a decade-high of 16.8% in March 2024. The report also indicated that all SCBs are well-capitalized, with an estimated CRAR of 16.1% by March 2025.
India's Economic Survey for 2023-24 emphasized the economy's resilience and projected real GDP growth at 6.5%-7% for FY25, slightly lower than the RBI's estimate of 7.2% and the IMF's projection of 7%. The survey outlined a six-pronged approach to sustaining stable economic growth of 7% in the medium term, highlighting the country's readiness for broad-based and inclusive growth despite near-term domestic and global challenges.
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