India’s Goods and Services Tax (GST) collections witnessed a strong surge in January 2025, reflecting positive momentum in the economy.
According to the National Council of Applied Economic Research (NCAER), gross GST collections grew by 12.3 per cent, while net collections saw a rise of 10.9 per cent compared to the previous month.
This growth follows a period of slower expansion in December 2024, when the figures stood at 7.3 per cent and 3.3 per cent, respectively.
The Purchasing Managers’ Index (PMI) for manufacturing also indicated economic expansion, rising to 57.7 in January, while the PMI for services remained strong at 56.5. These indicators suggest continued resilience in the industrial and services sectors, contributing to overall economic stability.
NCAER Director General Dr Poonam Gupta noted that a moderation in inflation has provided more space for policy manoeuvring. With headline inflation easing to 4.3 per cent, she highlighted that the agriculture sector’s strength is playing a crucial role in supporting economic stability.
The resilience in agriculture is expected to help control inflation and drive rural economic growth, further strengthening the broader economic landscape.
Data on Rabi sowing for the 2024-25 season also showed encouraging trends. By February 4, the sown area had reached 104 per cent of the normal level. Specifically, the area sown under rice stood at 101.2 per cent, while pulses covered 100.3 per cent of their usual sown area.
These figures suggest that the agricultural sector is on a solid footing despite earlier concerns about weather fluctuations and global disruptions.
However, despite strong GST collections and agricultural resilience, the growth rate of bank credit remained sluggish.
In December 2024, bank credit growth was recorded at 11.2 per cent, significantly lower than the 20.2 per cent observed in December 2023. Credit flow from banks to non-banking financial companies (NBFCs) also slowed, dropping from 15 per cent in December 2023 to just 6.7 per cent a year later.
Dr Gupta highlighted that credit from NBFCs plays a crucial role in consumer finance and small and medium enterprises (SMEs). The subdued credit growth could impact overall economic expansion, making it a factor to watch closely in the coming months.
She welcomed the recent decision to restore risk weights on commercial banks’ exposures to NBFCs, noting that it could stabilise credit flows and mitigate financial risks.
Another concern raised in the report was the continued outflow of foreign institutional investor (FII) funds. Dr Gupta explained that such outflows are primarily influenced by global factors rather than domestic conditions.
The recent reversal of FII flows is part of a broader trend affecting many emerging markets, making it necessary for India to focus on more stable sources of external funding.
To ensure long-term stability in foreign investments, she emphasised the importance of prioritising foreign direct investment (FDI) over FII inflows. Unlike FII investments, which are often volatile, FDI provides more reliable capital and facilitates direct access to global markets and technology.
Given this, she suggested that India should focus on strengthening FDI ties, particularly with the United States, in its ongoing discussions with the Trump administration.
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