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Informist, Thursday, Oct. 17, 2024

 

NEW DELHI – The performance of the Indian economy has decidedly turned weak, with data released over the last week adding to the grim set of numbers from late September that preceded the Reserve Bank of India's Oct. 9 decision to cut its GDP growth forecast for Jul-Sept by 20 basis points to 7.0%.

 

On Wednesday, trade data for September showed goods exports rose just 0.5% last month. This, though, is not all that bad, considering the first two months of the Jul-Sept quarter saw exports contracting on a year-on-year basis. However, economists are concerned by the "sluggish" growth in exports so far in 2024-25 (Apr-Mar).

 

"The latest data available up till August showed exports declined year-on-year across the EU, US, China, and UAE," Barclays economists said in a note Wednesday.

 

The mere 1% growth in India's merchandise exports in the first half of FY25 is one sign of a broader slowdown being experienced by the Indian economy. Growth in Nomura's proprietary India Coincident Activity Index--which covers consumption, investment, and the external sector--slowed to 3.0% in September from 4.1% in August and 6.5% in June, while its Composite Leading Index has been weakening sequentially from 100.21 in Jan-Mar to a provisional 99.93 for Oct-Dec. This, Nomura's Sonal Varma and Aurodeep Nandi said in a note on Thursday, "points to a rising risk of a cyclical growth slowdown in coming quarters".

 

The recent spotlight on weak economic data was started off by data on Sept. 30 on the central government's finances showing its capital expenditure was down 30% on year in August, while core sector growth hit a 42-month low of -1.8% in August. The manufacturing and services Purchasing Managers' Index readings for September, although still in expansionary territory, fell to eight- and 10-month lows, respectively, while Index of Industrial Production data, released last week, showed output contracted 0.1% in August -- the worst performance in 22 months.

 

Even on the price front, headline inflation shocked on the upside in September, rising far more than economists expected to a nine-month high of 5.49%, driven by higher food prices. This has raised questions over expectations of the Monetary Policy Committee following its change in stance to neutral on Oct. 9 with a first interest rate cut in four and a half years at its December meeting, particularly with CPI inflation seen rising even further to around 6% in October. The MPC will be armed with this number at its next meeting.

 

To be sure, the RBI had warned of the "inflation hump" in September and October, but it was more dismissive of the concerns about growth. At last week's post-policy press conference, RBI Governor Shaktikanta Das argued that while the picture might be a "mixed bag" at all times, it was the overall picture that mattered. Economists, for the moment, are focussing on the Jul-Sept GDP growth print that will be released at the end of November. According to ICICI Securities Primary Dealership, there is a risk that the central bank's downwardly revised forecast of 7.0% for the second quarter and 7.4% for the second half of FY25 "may be somewhat optimistic".  End

 

Reported by Siddharth Upasani

Edited by Avishek Dutta

 

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