India Sees Strong GST Growth Amidst Inflation Moderation and Credit Slowdown

India's GST collections recorded significant growth in January 2025, while manufacturing PMI surged. Despite the moderation in headline inflation, bank credit growth remained sluggish. Experts highlight the importance of prioritizing FDI to ensure stable external funding amid volatile FII flows.

In January 2025, India's gross and net GST collections surged with growth rates of 12.3% and 10.9% respectively, marking a significant increase from the more modest figures of December 2024. According to a monthly review by NCAER, the manufacturing PMI rose to 57.7, indicating expansion in the sector, while the services PMI also remained high at 56.5.

NCAER Director General Dr. Poonam Gupta commented that the decrease in headline inflation to 4.3% has provided more policy space. The agriculture sector, showing resilience, benefits inflation control and supports rural economic momentum. Rabi sowing for 2024-25 reached 104% of normal, with rice and pulses slightly exceeding typical sown areas.

Despite these gains, bank credit growth was muted at 11.2% in December 2024, a decline from 20.2% the previous year. Credit to NBFCs also decreased substantially. Dr. Gupta pointed out that sluggish credit growth could affect overall economic momentum. The restoration of risk weight for Scheduled Commercial Banks' exposures to NBFCs and heightened FII outflows pose challenges that need addressing to bolster economic confidence and stability.

(With inputs from agencies.)