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The Indian economy is showing signs of improving consumption demand in the first quarter of the financial year 2025-26 (Q1FY26), according to a recent report by Bank of Baroda.
The report highlighted the high frequency indicators that point towards a pickup in economic activity across various sectors compared to the previous quarter. It stated, "High frequency data available for Q1FY26 so far shows that consumption demand appears to be improving compared with last quarter.... domestic inflation remains in favour which hints at softer monetary policy". The report expects this trend to continue, with investors remaining hopeful about the successful completion of the India-U.S. trade deal before the August 1 deadline, which could further support the INR. Domestic inflation remains favourable, which according to the report, hints at the possibility of a softer monetary policy going ahead. The report also highlighted that steel consumption growth has picked up pace, indicating increased infrastructure and construction activity. Additionally, there has been a rise in electronic imports, suggesting higher household and industrial demand. The central government's revenue spending also increased during the quarter, further supporting consumption trends. The report also shared that the service sector activity showed improvement as well. Indicators such as the services Purchasing Managers' Index (PMI), vehicle registrations, diesel consumption, revenue collection of states, and e-way bill generations all reflected higher activity levels in Q1FY26. Monsoon activity has been healthy too, with rainfall at 15 per cent above the long period average (LPA) as of July 9, 2025, which could provide further support to rural demand and agriculture. The report also noted that both services and manufacturing PMIs have improved in Q1 compared to Q4. Capital goods production, capital expenditure spending, and new project announcements also fared well in the first quarter. However, the report pointed out that demand for work under MGNREGA (household) remained muted, and there were some strains in the performance of 2-wheeler sales. A moderation was also observed in consumer durables and FMCG output. On the macroeconomic front, the report shared that India's 10-year government bond yield showed some stability in July after a moderate correction in June 2025. The report also shared that the Indian Rupee (INR) is trading with an appreciating bias in July 2025, despite ongoing concerns over U.S. tariff policies. (ANI)
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