Urban Demand Slowdown Evident, Rural Demand Strengthens: Finance Ministry Report
Finance Ministry’s report indicates an urban demand slowdown, with strengthened rural demand in H1 FY25. While FMCG sales and auto sales softened in urban areas, rural demand rose due to positive agricultural conditions and government initiatives.
The Indian Finance Ministry's latest economic report is displaying early signs of an urban demand slowdown while emphasizing that there is strengthened rural demand for the first half of FY25. This analysis is the first official confirmation of a decline in economic momentum after the pandemic, though all other growth indicators in the previous quarters have been consistently well within expectations.
Indicators of Urban Demand Slowdown
The Finance Ministry report shows a key indicator of the falling demand in urban areas. Such key indicators include a drop of 3.76% in merchandise exports, and low sales in both the commercial vehicle and the tractor sectors. Growth of FMCG sales has slowed down too, with FY25 Q1 showing just 2.8%. It is a significant deceleration from the 10.1% growth noted in Q1 FY24. Auto sales declined by 2.3% during H1 FY25 over the previous corresponding period mainly on account of seasonal factors such as rains and lesser consumer footfalls.
The sales of houses and launches of new projects were relatively soft in Q2 FY25. Industrial capacity utilization has eased to 74% from a 44-quarter high of 76.8% reported in the preceding quarter while the inventory-to-sales ratio has inched up a little.
Increased Rural Demand Due to Agriculture and the Government
Rural demand has been resilient and growth oriented, with a positive agriculture outlook and various government initiatives. Above-average monsoon rainfall has further boosted Kharif sowing, while higher MSPs for Kharif crops have increased rural incomes. Allocations for the Mahatma Gandhi National Rural Employment Guarantee Scheme have further strengthened purchasing power in the rural sector.
This also reflects in the FMCG sector wherein NielsenIQ data has reported volume growth of 5.2% in Q1 FY25, a better comparison to the previous year, which had posted 4% growth. The Ministry of Finance would expect more strength in the rural sector, further supplemented by a good agricultural output and policies-driven incentives.
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