India’s growth engine loses steam in June, may get back on track soon

The Indian economy hit a soft patch in June with several high-frequency indicators such as goods and services tax (GST), UPI transactions, diesel consumption and car sales showing muted growth or even a contraction from a year earlier.

On the positive side, India’s manufacturing activity strengthened and petrol consumption increased at a fast clip.

Economists said this was a transitory moderation and growth is expected to gain momentum again, helped by a likely good monsoon, easing inflation and monetary relaxation by the RBI. The central bank has forecast growth at 6.7% in FY26.

GST collections expanded at the slowest in the last 50 months at 6.2% in June, car sales dropped 6% in the month from a year ago and the UPI witnessed a slight decline in both transaction volume and value in June from May.

“Around 6% growth in GST collections, coupled with less than 4% growth in advance tax collection for first quarter of FY26 does indicate softening of demand and cautious outlook,” said Pratik Jain, partner, Price Waterhouse & Co LLP.

Favourable weather conditions

ET reported Tuesday that sales of air conditioners and refrigerators dropped sharply in the April-June quarter in the wake of milder-than-expected summer temperatures.

Data released on Monday showed India’s industrial output growth slowed to a nine-month low of 1.2% in May, due to weak manufacturing growth along with contraction in mining and electricity sectors.

Private sector companies announced new projects worth Rs 3.5 lakh crore in the quarter ended June, up from Rs 1.4 lakh crore in the same quarter last year, according to data from the Centre for Monitoring Indian Economy (CMIE). However, this was the slowest in four quarters.

India’s manufacturing activity rose to a 14-month high of 58.4 in June, driven by strong growth in output and new orders. The HSBC Purchasing Managers Index (PMI), compiled by S&P Global, was 57.6 in May and 58.3 in June 2024.

The UPI platform processed 18.40 billion transactions during the month, down from 18.68 billion in May. Transaction value dipped to ₹24.04 lakh crore from ₹25.14 lakh crore in May, according to data released by the National Payments Corporation of India (NPCI) on July 1.

Power consumption dipped 1.5% from a year earlier to 150.04 billion units in June.

OUTLOOK

Economists expect growth to pick up going ahead.

“Despite a potential second-half slowdown, India is poised to grow close to trend, backed by favourable weather conditions, 0.6% GDP worth of policy support for urban consumers, and increased public capex,” said Anubhuti Sahay, senior economist, Standard Chartered Bank.

While the data indicates a mixed picture, the Indian economy is likely to have grown by 6.8% in the June quarter as the base is favourable, she said.