Rural demand, government spending to drive growth in the second half of FY25

• Rural demand and government spending are expected to drive India's economic growth.
• According to an ICICI report, these two factors will lead to the second half of the current financial year.
• The report also highlighted a strong performance in consumer durables.

Rural demand and government spending will be key drivers of India's economic growth in the second half of the current financial year, according to a report by ICICI Bank.

The report forecasted an anticipated surge in the rural economy, propelled by the government's sustained focus on infrastructural development and welfare expenditures, which are also projected to contribute positively to this economic growth.

It said, "We expect rural demand and government spending to be drivers of growth in H2FY25. More importantly, consumer non-durables too reported an expansion of 2% driven by rural demand".

The report also highlighted a strong performance in consumer durables, with demand remaining resilient amid an improving economic outlook. It noted that production of consumer durables, such as home appliances and electronics, saw a year-on-year increase of 6.5% in September.

Additionally, consumer non-durables, often seen as essentials like food and personal care products, have also shown signs of recovery. After experiencing a decline for three consecutive months, non-durables reported a modest 2% growth in September, mainly driven by rural demand.

It added, "Even consumer non-durables reported an increase of 2% YoY in September, after being in contraction for the past 3 months. Rural demand can explain the pick-up in FMCG output".

This uptick suggests that increased consumption in rural areas positively impacts the fast-moving consumer goods (FMCG) sector.

On a broader scale, the report added that India's manufacturing sector also exhibited growth, with 19 out of 23 sub-sectors showing expansion, up from just 12 in the previous month.

Strong performance was observed in segments such as electrical equipment, transport equipment, furniture, and rubber and plastics, pointing to a widespread recovery in manufacturing.

However, while the report noted that there has been growth, there are signs of a deceleration. In the second quarter of FY25, the Index of Industrial Production (IIP) recorded a 2.6% year-on-year growth, a notable decrease from the previous quarter's 6.9% and significantly lower than the 7.8% growth seen in Q2FY24.

It said, "In Q2FY25, IIP grew by 2.6% YoY, a substantial slowdown from last quarter's 6.9% YoY, while in Q2FY24, the number was a healthy 7.8% YoY".

Over the first half of FY25, IIP growth stands at 4% compared to 6.2% in the same period last year, reflecting a slowing pace in industrial production.

Despite some signs of a slowdown in industrial growth, the report's outlook remains optimistic, as rural demand and government expenditure are expected to drive growth in the coming months. This trend will be essential to monitor as it could significantly shape the economic trajectory for the remainder of FY25.

With inputs from ANI.

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