Indian economy shows positives despite headwinds: NCAER

Indian economy shows some turnaround

The Indian economy showed some positives in January despite facing global headwinds, the National Council of Applied Economic Research (NCAER) noted in its February economic review, pointing to the turnaround in indicators like the manufacturing Purchasing Managers’ Index, goods and services tax (GST) collections and data on auto sales.

GST collections were up 12.3 percent in January from the same month last year, touching a nine-month high of Rs 1.96 lakh crore.

Manufacturing PMI rose to a six-month high of 57.7 in January from a 12-month low of 56.4 in December 2024.

“Moderation in inflation (headline inflation to 4.3 percent) has opened up more policy space. The agricultural sector is also exhibiting much-needed resilience, which bodes well for both inflation control and giving a rural push to the economy,” said Poonam Gupta, director general, NCAER.

In February, the Reserve Bank of India delivered its first rate cut in five years, dropping the policy rate to 6.25 percent from 6.5 percent earlier. Economists in a Moneycontrol poll conducted last week pegged the policy rate at 5.75 percent by the end of the coming fiscal. Over 90 percent of the 18 economists in the poll predicted a rate cut for the upcoming April meeting.

Inflation is likely to stay subdued in the coming year, with the RBI expecting inflation to average 4 percent by the second quarter of FY26.

However, Gupta noted that subdued growth could affect the economy’s growth prospects, while being more sanguine about foreign institutional investor outflows.

“Empirical studies show that FII flows are driven more by external factors than by domestic ones and, hence, are quite volatile in nature. As in the past, the current phase of reversal of FII flows from India is a global phenomenon and is associated with reversals from many other emerging markets,” she noted, highlighting the need to accord higher priority of foreign direct investment.