Rising GST, Resilient Agriculture Buoys India's Economy Amid Decelerating Bank Credit

India's GST collections show significant growth in January 2025, supported by resilient agriculture and increased manufacturing PMI, despite a slowdown in bank credit growth. NCAER suggests prioritizing FDI over FII to ensure stable external funding, amid volatile foreign investment flows.

The Indian economy displayed encouraging signs in January 2025, with robust growth in Goods and Services Tax (GST) collections, according to a review by the National Council of Applied Economic Research (NCAER). GST collections surged impressively, with gross and net figures increasing by 12.3% and 10.9% respectively, compared to the more modest 7.3% and 3.3% in December 2024.

Manufacturing showed notable expansion with the Purchasing Managers' Index (PMI) reaching 57.7, while services PMI hovered at a healthy 56.5. NCAER Director General Dr. Poonam Gupta highlighted the easing of headline inflation to 4.3%, which has opened up new policy avenues. Dr. Gupta also noted the resilience of the agricultural sector, with Rabi sowing surpassing expectations, which could support inflation control and economic growth in rural regions.

However, growth in bank credit decelerated to 11.2% in December 2024, down from 20.2% a year ago. Financial institutions faced slower credit uptake, particularly from Non-Banking Financial Companies (NBFCs), which saw a drop from 15% to 6.7%. Dr. Gupta welcomed the restoration of risk weights for bank exposures to NBFCs but warned of the persistent volatility in Foreign Institutional Investment (FII) outflows, suggesting a strategic pivot towards more stable Foreign Direct Investment (FDI) for continued economic resilience.