Amid Ongoing Elections, Govt Capex Likely To Hit Snooze In Q1FY25 With Possible Revival In H2

The global environment continues to lace with uncertainty, given the uncertainty due to ongoing geo-political tensions and interest rate trajectory by Central banks. Additionally, amidst the ongoing elections, government capex might hit snooze in Q1FY25 with a possible revival in H2, according to a report by the Bank of Baroda (BoB).

However, resilient domestic demand (strong manufacturing PMI, GST collections at a record high, greater electricity demand) will play in favour of the manufacturing sector in FY25. For rural demand, the focus will shift towards spatial and temporal distribution of monsoon which is expected to be above normal this year, the report added.

Within use-based, capital goods output accelerated to a five-month high of 6.1 per cent in March 2024 compared with a growth of 1 per cent in February 2024, led by a government push. 

After contracting by 3.5 per cent in February 2024, the output of consumer non-durable rebounded to 4.9 per cent in March 2024. On the other hand, the output of primary goods output and intermediate goods disappointed the most clocking a growth of 2.5 per cent (5.9 per cent in February 2024) and 5.1 per cent (8.7 per cent in February 2024) in March 2024 respectively. 

Infrastructure goods output eased down by 6.9 per cent noting the slowdown in steel output. Moreover, the output of consumer durable goods also registered moderation at 9.5 per cent (12.4 per cent in February 2023). For FY24, capital goods output at 6.2 per cent versus 13.1 per cent in FY23 disappointed the most.

Talking about the Index of Industrial Production (IIP) growth, the report stated, “It came in below our expectations (6 per cent) at 4.9 per cent in March 2024 compared with a growth of 5.6 per cent in February 2024. This was led by a sharp slowdown in mining activity which registered a modest growth of 1.2 per cent, the lowest growth in over 19 months from 8.1 per cent in February 2024.”

 On the other hand, manufacturing output rose to a five-month high of 5.2 per cent in March 2024 from 4.9 per cent in February 2024. The manufacturing sector gained with over six out of 23 sub-industries registering improvement. The bulk of this gain was accounted for by the production of pharma, medicinal products (16.7 per cent versus -10.6 per cent), wearing apparel (7.5 per cent versus -2.8 per cent) and furniture (31 per cent versus 23 per cent). 

Notably, the manufacture of the following products including tobacco products (-17.9 per cent versus -0.4 per cent) and leather products (-10.3 per cent versus 1.8 per cent) registered a sharp contraction in March 2024. Production of beverages decelerated down to 0.4 per cent (13.4 per cent in February 2023).