Economic Pathways July 2025 by CareEdge Ratings
Economic Activity Update
GST, E-Way Bills & PMIs Stay Upbeat
* GST collections and E-way bills generation have shown healthy growth in Q1 FY26, rising by 11.8% and 20.5%, respectively.
* India’s manufacturing PMI rose to 58.4 in June, marking a fourteen-month high. The Services PMI at 60.4 was recorded at its highest level in the last ten months.
Economic Activity Update
Domestic Auto Sales Picture Mixed
* Domestic sales of passenger vehicles contracted by 1.4% (y-o-y) in Q1 FY26 reversing from a 2.4% growth in Q4 FY25.
* 2-3 wheelers sales also weakened, contracting by a sharp 6% (y-o-y) as against 1.6% growth in the previous quarter.
* In contrast to the performance in sales of PVs and 2-3 wheelers, tractor sales continued to record an encouraging growth.
* Overall, some weakening in auto sales was visible in the first quarter of FY26. This trend needs monitoring going forward.
Inflation Scenario
CPI Inflation Continues on a Downward Trajectory
* Sustained easing in CPI inflation was primarily driven by moderation in food inflation and a favourable base effect.
* The 4rise in core CPI is not broad-based and is mainly attributed to double-digit inflation in precious metals.
* Downward trajectory of CPI inflation and favourable prospects for monsoon and agriculture remain positives for the rural demand outlook.
Southwest Monsoon Progress
Cumulative Rainfall 8% Above the LPA
* Southwest monsoon has been 8% above the Long Period Average (LPA) as of 19 July 2025.
* Furthermore, normal to excess rainfall was seen in 66% of the country’s subdivisions.
* With rainfall projected to be above normal in July, the prospects for the rural economy and agricultural output remain favourable.
Sowing Update
Good Progress in Kharif Sowing Continues
* Total sown area has increased by 6.7% (y-o-y) as of 11 July 2025. Despite some slowdown in sowing, the overall sowing progress remains upbeat.
* Sowing of foodgrains was buoyed by a strong increase in sowing of both pulses (by 25.7%) and cereals (by 13.4%).
* Sowing of oilseeds was seen contracting by 1.8% as of July 11, 2025, reversing from the improvement seen in the earlier week.
Public Capex Scenario
Public Capex Remains Encouraging
* Both Centre and state (20 major states) capex have been showing encouraging trends since H2 FY25.
* During the first two months of FY26, Centre’s capex logged a strong start, having met 20% of the budget estimate (higher than 13% in the same period last year).
* While public capex remains strong, private investment scenario is likely to be clouded by an uncertain global economic outlook.
Private Investment Scenario
Private Investments Yet to Show a Meaningful Pick-Up
* New investment announcements continue to be driven largely by the private sector.
* Electricity and manufacturing sectors accounted for 78% of the total new investments announced.
* Within manufacturing, the announcements were focused on metals & products (13% share in total announcements), chemicals (8%) and machinery (6%).
Private Investment Scenario
Private Investments Yet to Show a Meaningful Pick-Up
* Government remained at the forefront of investment completions. Total investment completions stayed above the Rs 2 trillion mark for the second consecutive quarter.
* 71% of the investment completions were concentrated in the non-financial services and electricity sectors.
* Transport services (which includes roads) led the investment completions in the non-financial services.
IIP Update
Growth in Industrial Output Remains Lacklustre
* Growth in India’s industrial production has shown a subdued performance, rising by 1.9% during April-May in FY26 as against 5.7% in the same period last year.
* Contraction in both electricity and mining sectors, along with moderation in manufacturing sector growth, weighed on the overall IIP growth.
* Within the use-based classification, output of consumer goods continued to exhibit weakness. However, growth in infra and capital goods remains encouraging.
* Overall, the domestic demand and investment situation remains to be monitored going forward while the external environment is likely to remain volatile.
Bank Credit Update
Bank Credit Offtake Comes Off a High
* Overall bank credit offtake moderated to 9.9% (y-o-y) as of May-25, as compared to 16.2% as of May last year.
* This moderation can be attributed to an unfavourable base, subdued momentum, preference for bond issuances and focus on managing the Credit-to-Deposit (CD) ratio.
* Muted capex activity on the corporate side amid uncertainties around the tariff situation has also contributed to the subdued loan demand.
* Credit growth to large industries and services moderated to 5.9% as of May-25 compared to 16.8% last year.
Merchandise Trade Update
Non-Petroleum Exports Improve; Imports Show Healthy Growth in Q1.
* Non-petroleum exports performed fairly well in Q1 FY26 logging a 6% growth.
* However, sharp contraction in petroleum exports (at 15.7%) kept the overall merchandise exports growth muted at just 1.9% in Q1.
* Non-oil imports have shown an improvement in Q1, rising by a strong 7.9% as against 2.1% growth in the same quarter a year ago
Services Trade Update
Services Exports Continue to Shine
* India’s services exports continued to show a healthy performance, rising by a strong 10.9% in Q1 FY26 despite global economic headwinds.
* Given this resilience, we expect India’s services exports to grow by 8% in FY26.
Trade Deficit Position
Merchandise Trade Deficit Widens; Services Trade Surplus Remains Upbeat
* India’s merchandise trade deficit widened to USD 67.2 billion in Q1 FY26, mainly on account of higher non-oil deficit.
* Upbeat services trade surplus recorded in Q1 FY26 helped cushion the higher deficit on the merchandise trade front.
* As a result, India’s overall deficit (factoring merchandise & services trade balance) was seen at USD 20.3 billion in Q1 FY26, lowest in the last three yea
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