1. Global Economy: Conflict & Energy Concerns
a) The global economy is evolving rapidly and unpredictably.
b) Rising tensions in West Asia (Middle East) — especially between Israel, Iran, and the US — caused global worry.
c) The Strait of Hormuz, which handles 20% of the world’s oil and LNG shipping, was under threat.
d) Due to fears of a blockade, Brent crude oil jumped nearly 20%, but once a ceasefire was announced, oil prices quickly fell — reaching $67/barrel on 24 June 2025.
e) For now, the immediate danger has eased, but long-term peace is still uncertain.
2. Global Trade & Growth Outlook Weakens
a) Due to conflicts and trade restrictions, the World Bank lowered global growth projections:
2025: 2.3%
2026: 2.4% (Earlier, both were projected at 2.7%)
b) Global trade growth is also expected to slow down:
From 3.4% in 2024 to just 1.8% in 2025
3. India’s Economic Growth Remains Resilient
a) Real GDP growth in FY25: 6.5% (as per provisional data)
b) Nominal GDP growth: 9.8%
c) Gross Value Added (GVA): Grew by 6.4%
4. Growth Drivers: Demand Side
a) Private consumption saw a strong rebound: 7.2% growth, mainly due to rural recovery.
b) Its share in GDP rose to 61.4%, the second-highest in 20 years.
c) Investment (GFCF) grew by 7.1% — lower than FY24 but still better than pre-COVID average.
Exports rose 6.3%, even with global uncertainty.
Imports fell 3.7%, helping the trade balance.
5. Growth Drivers: Supply Side
a) Agriculture: Strong performance — 4.6% growth (thanks to good monsoon and record harvest).
b) Manufacturing: Moderate — 4.5%
c) Construction: Strong — 9.4%
d) Services: Robust — 7.2% (led by finance, real estate, public services)
GVA Contribution:
Services: 3.9 percentage points
Industry: 1.8 pp
Agriculture: 0.7 pp
6. Q4 FY25: Stronger Momentum
a) GDP growth in Q4 FY25 rose to 7.4% from 6.4% in Q3 — keeping India the fastest-growing major economy.
b) Q4 Growth Breakdown:
Construction: 10.8%
Services: 7.3%
Industry: 6.5%
Agriculture: 5.4%
Demand Side:
GFCF (Investments) grew by 9.4% in Q4 (vs. 5.2% in Q3)
Its share in GDP (real): rose to 33.9%
Private consumption slowed slightly to 6.0%
Share in GDP (real): down to 53%
📦 Exports: rose to 21.4% of GDP
🛢️ Imports: declined to 21.8% of GDP, helped by lower global oil prices
7. Corporate Sector Update
a) Nifty 500 companies (Q4 FY25): Net Sales growth: 5.7% YoY
b) Profit After Tax (PAT): 9.5% YoY (better than expected)
c) Margins improved due to cost control and efficiency, despite revenue pressure
8. Early FY26 Signals: Positive Start
a) April–May 2025 data shows strong domestic momentum despite global tensions:
E-way bill generation in May: second-highest ever at 122.7 million
b) Diesel and petrol consumption hit record highs due to:
Summer travel
Increased industrial and transport activity
Agricultural irrigation demand
10. Manufacturing Sector (PMI – May 2025)
a) The Manufacturing PMI for May 2025 indicated continued improvement in business conditions.
b) Although the pace of growth in output and new orders slowed compared to April, it still remained above long-term averages.
c) Demand conditions remained strong, supporting both sales and production.
d) New export orders rose at one of the highest rates in the past 3 years.
Conclusion: The manufacturing sector is still growing steadily, with strong export momentum despite a slight slowdown in growth pace.
11. Construction Activity
a) Steel consumption grew by 7.0% in April–May 2025.
b) Cement production increased by 6.7% in April 2025.
c) However, both indicators showed slower momentum compared to Q4 of FY25.
Conclusion: Construction activity continues to grow but at a moderated pace compared to previous months.
12. Services Sector
a) Services PMI in May 2025 stood at 58.8, slightly higher than 58.7 in April — showing continued strong growth.
b) International demand remained robust, with export business hitting near-record growth.
c) Air cargo volumes showed strong double-digit growth in April — the highest in 5 months.
d) Port traffic also rose in May (4.4% YoY), supported by container cargo, petroleum, oil, lubricants, and miscellaneous goods.
Conclusion: The services sector is performing well, especially due to strong global demand and logistics activity.
13. Hospitality Sector
a) Business and leisure travel boosted the hospitality industry in April 2025.
b) Hotel occupancy increased by 5 percentage points to 67% compared to April 2024, with a slight rise from March as well.
Conclusion: Travel recovery is boosting the hotel and hospitality sector.
14. Urban Demand Indicators
a) Domestic air passenger traffic rose 9.7% YoY in April 2025 — indicating strong urban travel demand.
b) However, retail passenger vehicle sales were weak in May, especially for entry-level models, due to subdued consumer sentiment, as per FADA.
Conclusion: Air travel demand is strong, but car sales — especially affordable segments — are under pressure.
15. Rural Demand
a) Tractor sales grew 9.1% YoY, and two-wheeler sales rose 7.3% YoY in May 2025.
b) This growth was supported by a strong rabi harvest and a positive monsoon forecast, which is a good sign for the upcoming kharif season.
Conclusion: Rural demand is strong and gaining further momentum, helped by a healthy agricultural outlook.
16. Retail Inflation Hits Lowest Since Feb 2019
a) Retail inflation (CPI) fell to 2.8% in May 2025, marking the 7th consecutive monthly decline.
b) The drop is broad-based, meaning price stability or decline is seen across multiple categories.
Key reasons:
✅ Strong wheat and pulses production
✅ Positive monsoon forecast — good news for both Kharif and Rabi crop seasons.
17. Food Inflation Also Drops Sharply
a) Food inflation fell from 1.8% in April to below 1% in May 2025 — the lowest since October 2021.
b) Prices fell in cereals, eggs, meat, vegetables, pulses, and sugar.
Government interventions helped:
a) Launch of Bharat Dal, Bharat Atta, and Bharat Rice
b) Open market sales of wheat and rice
c) Pulses and vegetables entered a deflationary zone — meaning their prices are lower than last year.
18. Edible Oil Prices Still High
a) The ‘Oils and Fats’ category still shows inflationary pressure.
b) In response, the government cut basic customs duty from 20% to 10% on crude sunflower, soybean, and palm oil.
c) This move is aimed at lowering import costs and retail prices.
d) The government also issued advisories to ensure that consumers receive the full benefit of this duty cut.
19. RBI Cuts Repo Rate & Boosts Liquidity
a) In June 2025, the RBI cut the repo rate from 6% to 5.5% — the biggest rate cut since 2020.
b) So far, a total of 100 bps has been cut since Feb 2025.
c) The policy stance shifted from ‘Accommodative’ to ‘Neutral’.
d) RBI also announced a 100 bps CRR cut, to be rolled out between September and November 2025, injecting ₹2.5 lakh crore liquidity into the system.
Goal: Make loans cheaper, increase lending, and support credit growth.
20. Global Financial Markets Tight but Gold Holds
a) Early 2025 saw high volatility in global financial markets due to trade policy uncertainty.
b) Traditional safe-haven assets like gold remained strong, but the typical relationship between the US dollar and bond yields broke down.
From Jan–June 2025:
US Dollar Index fell by 7%
30-year US Treasury yield rose by 11 bps
21. Indian Government Bond Market Remained Stable
a) In May 2025, Indian 10-year G-Sec yield dropped by 9 bps.
b) Why? RBI announced a record ₹2.69 lakh crore surplus dividend, signaling a strong fiscal position.
c) The India–US bond yield spread narrowed to 182 bps — making Indian bonds more attractive.
22. Indian Banking Liquidity Improved
a) From Feb–April 2025, banks had a ₹1.2 lakh crore liquidity deficit on average.
b) By April–June, this turned into a ₹1.6 lakh crore surplus.
c) The Weighted Average Call Rate (WACR) is now 16 bps below the repo rate.
d) The upcoming CRR cut will further improve liquidity and help banks pass on rate cuts to borrowers.
e) As of May 30, total durable liquidity surplus = ₹5.85 lakh crore
23. Credit & Deposit Growth
As of May 30, 2025:
Bank credit growth: 9.9% YoY (down from 16.1% last year)
Deposit growth: 10.1% YoY (down from 12.2% last year)
Credit–Deposit ratio: 78.9% (unchanged from last year)
Conclusion: Growth has slowed, but liquidity is improving — lending may pick up in the coming months.
24. Rising Global Trade Uncertainty
a) Recent changes in trade policy—especially fears of higher US tariffs—have increased uncertainty across global markets.
b) If other countries retaliate, this may further escalate trade tensions and also impact third-party economies.
c) Evidence of this: the Trade Policy Uncertainty Index has risen significantly in recent months.
Bottom line: Trade policies are becoming unpredictable, creating global instability.
25. Slowing Global Trade Growth
a) According to the World Bank, global trade growth (goods + services) will slow to 1.8% in 2025 (down from 3.4% in 2024).
b) Recovery is expected, with growth reaching 2.7% by 2027, but still below the pre-pandemic average of 4.6%.
The recovery will be uneven:
a) Countries more connected with emerging markets will recover faster.
b) Countries linked mainly with advanced economies may recover more slowly.
Bottom line: Global trade will recover slowly, and not all countries will benefit equally.
26. India’s External Sector – May 2025
a) India’s total exports (goods + services) in May 2025 grew 2.8% year-on-year, from USD 69.2 bn (May 2024) to USD 71.1 bn.
b) Merchandise trade deficit shrank from USD 26.4 bn (April) to USD 21.9 bn (May).
c) Services exports were estimated at USD 32.4 bn in May 2025.
d) Combined goods + services trade deficit fell to USD 6.6 bn, from USD 10.5 bn in April.
Bottom line: Despite global uncertainty, India’s exports remained stable, and the trade deficit improved significantly.
27. Oil Imports & Crude Prices
a) India’s oil imports dropped by 28.5% (MoM) in May 2025.
b) This was due to a decline in the average Indian crude oil basket price:
April: USD 67.7/barrel
May: USD 64/barrel
By June 24: USD 68.8/barrel
Bottom line: Oil prices dipped temporarily in May, reducing India’s import bill, but have started rising again.
28. Foreign Portfolio Investment (FPI) Trends
a) April 2025: Net FPI outflow of USD 2.3 bn across asset classes.
b) May 2025: Reversal with net FPI inflow of USD 3.6 bn.
c) Equity segment: April–May 2025 saw net inflows of USD 2.9 bn, compared to net outflows of USD 4.1 bn during the same period last year.
d) Debt segment: Recorded net outflows of USD 1.4 bn, showing cautious investor sentiment.
e) A key reason: the narrowing yield gap between Indian and US government bonds, which makes Indian debt less attractive.
f) Over time, investors may adjust to a lower risk premium, reflecting India’s improving fiscal credibility.
Bottom line: FPIs are returning to Indian equities, but debt investments remain cautious due to global rate dynamics.
29. Forex Reserves & Rupee Stability
a) India’s foreign exchange reserves stand at USD 699 billion as of 13 June 2025 — enough to cover 11.5 months of imports and 97.4% of external debt.
b) The rupee appreciated slightly — from ₹85.6/USD to ₹85.2/USD (0.4% MoM gain).
c) Compared to other Asian currencies like South Korea, Malaysia, and Japan, the INR remained much more stable, showing India’s relative currency strength.
30. Rare Earth Elements (REEs) & India’s Strategic Plan
a) China imposed export restrictions on rare earth elements (REEs), which are vital for EVs, solar energy, defense, and storage technologies.
b) In response, India identified 30 critical minerals, placing 24 under central government control for auctioning.
c) In Jan 2025, India launched a 7-year mission (2024–31) called National Critical Mineral Mission (NCMM) to become self-reliant in mineral supply.
d) A joint venture called KABIL has been created to acquire critical mineral assets abroad.
e) In April 2025, India also introduced revised exploration rules for rare earths, defining four stages (G4–G1) to support responsible mining.
31. Nuclear Energy Push
a) The World Bank lifted its decades-long ban on funding nuclear energy to accelerate low-carbon energy development.
b) India announced a ₹20,000 crore Nuclear Energy Mission to develop Small Modular Reactors (SMRs) — goal: operationalize 5 indigenous SMRs by 2033.
32. Labour Market Seasonal Impact
May 2025 PLFS data shows:
Labour Force Participation Rate (LFPR): 54.8% (slightly down)
Unemployment Rate (UR): 5.6% (up from 5.1% in April)
Rural employment in agriculture fell due to the end of the Rabi harvest.
High temperatures reduced outdoor work, especially in wealthier rural households.
33. Positive Hiring Trends
a) Naukri JobSpeak (May 2025): White-collar hiring rose 0.3% YoY
b) AI/ML roles: +25%
c) Insurance, Real Estate, BPO, Hospitality: +4–6%
d) PMI Employment Index:
Manufacturing: 54.9
Services: 57.1 — indicates strong job creation.
e) TeamLease Outlook: 47% of employers plan to increase hiring in H1 FY26.
f) ManpowerGroup Survey: India has the 2nd strongest global hiring sentiment (Net Employment Outlook = 42%).
34. Workforce Formalisation
EPFO: Added 19.1 lakh new members in April 2025 — 58% of them were aged 18–25, indicating young first-time job seekers.
The e-Shram portal has registered 30.9 crore unorganised workers, enabling access to social security schemes.
35. Human Development Index (HDI) Growth
a) India’s HDI improved to 0.685 in 2023 (from 0.676 in 2022), nearing the high human development category.
b) Life expectancy: 72 years (from 58.6 in 1990)
c) Average years of schooling: 13 years (from 8.2 in 1990)
d) Credit goes to: Ayushman Bharat, Poshan Abhiyaan, NEP 2020, Right to Education, etc.
e) India is emerging as a global AI talent hub, with rising AI researcher retention.
f) Schemes like MGNREGA, Jan Dhan, Digital India have helped reduce multidimensional poverty.
36. Economic Outlook & Risks
a) FY25 growth was resilient — thanks to strong private consumption and services.
b) Early FY26 indicators (e.g., PMI, e-way bills, fuel use) also show positive momentum.
c) Global slowdown continues:
Eurozone: -90 bps
US: -50 bps
Japan: -30 bps
d) India’s growth forecast steady at 6.3% — still fastest among major economies.
37. Inflation & Monsoon Update
a) FY26 inflation projection: 3.7%
b) Monsoon arrived early (24 May), but stalled for a few days — as of 25 June, rainfall is 7% above normal.
c) Risks to inflation remain: global oil prices, geopolitics, weather issues.
38. Final Outlook: India Well-Positioned
a) Macro fundamentals are sound — growth is steady, inflation is under control.
b) Brief Israel-Iran conflict raised oil prices, but ceasefire brought some relief.
c) India is focusing on agriculture, minerals, deregulation, and strategic positioning to capitalize on global shifts.
Key takeaway: These may be uncertain times, but India is better placed than most nations — the key lies in being agile, flexible, and visionary.
Source : Department of ECONOMIC AFFAIRS
