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Informist, Monday, Oct. 7, 2024

 

NEW DELHI – The Indian economy is showing signs of slowing down, with high-frequency data released in the last week suggesting GDP growth could again come below 7% in the second quarter of 2024-25 (Apr-Mar), according to some economists. In Apr-Jun, India’s GDP growth had fallen to a five-quarter low of 6.7%.

 

The series of weak numbers were kicked-off on the last day of September, with the central government's finances showing its capital expenditure was down 30% on-year in August and 19.5% in Apr-Aug. Core sector data, also released on Sept. 30, showed output contracted by 1.8% on year in August--the worst performance in 42 months.

 

The numbers have continued to trend downwards: the manufacturing and services Purchasing Managers’ Index for September, while still in expansionary territory, fell to eight- and 10-month lows, respectively, while Goods and Services Tax collections last month only grew by 6.5%--the weakest pace of expansion since June 2021. On Monday, data from the Federation of Automobile Dealers Associations showed India's overall automobile retail sales declined 9.3% on year in September.

 

"CV (commercial vehicle) sales marked their fourth consecutive fall (the worst in 43 months), air cargo traffic contracted for the second consecutive month, vaahan registrations fell for the first time in 11 months, and power generation and PV (passenger vehicle) sales saw sluggish growth," Motilal Oswal Financial Services’ economists Nikhil Gupta and Tanisha Ladha said in a note on Saturday.

 

Gupta and Ladha estimate that GDP growth may have fallen further to 6.0-6.5% in Jul-Sept, data for which will be released at the end of November. The Reserve Bank of India has forecast Jul-Sept GDP growth at 7.2%.

 

"Softer growth signals are visible, and this may not be transient," Nomura economists said in a note last week. "After the weak Apr-Jun GDP, high-frequency data point to a further softening of growth momentum, including the latest data on auto sales, diesel sales, core infrastructure growth, GST collections and exports," they said.

 

The weakening growth signals in addition to continuing concerns on the geopolitical front have led to some talk of the RBI on Wednesday possibly lowering its FY25 growth forecast by 10-20 basis points from the current 7.2%. The central bank is also expected to lower the Jul-Sept growth forecast. This would come on the back of RBI staff writing in their monthly State of the Economy article that growth in the second quarter is seen at 7.0%, although it pegged the full-year projection at 7.3%, higher than the central bank’s official view.

 

To be sure, even the government has made note of the weakening momentum. In its Monthly Economic Review report for August, released on Sept. 26, the finance ministry had written there are "incipient signs of strains in certain sectors" in the form of build-up of passenger vehicle inventory, slowdown in growth of fast-moving consumer goods sales in urban areas, and fall in capital expenditure by states.

 

"While these may turn out to be transient with the onset of the festival season, they warrant monitoring," the finance ministry had said.

 

Nomura economists, however, disagree. They argue that while there are some transitory factors at play, "there are also some persistent elements, including a fading of urban pent-up demand, policy-induced tighter credit, contracting real rural wage growth, an uneven private capex recovery, and softer global demand."  End

 

Reported by Shubham Rana

Edited by Deepshikha Bhardwaj

 

 

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