The Indian economy is showing signs of slowing down, with high-frequency data released last week suggesting GDP growth could again come below 7 per cent in the Jul-Sep quarter of 2024-25. In Apr-Jun, India’s GDP growth had fallen to a five-quarter low of 6.7 per cent.
A series of weak numbers emerged on the last day of September, with the central government’s finances showing its capital expenditure was down 30 per cent on-year in August and 19.5 per cent in Apr-Aug. Core sector data, also released on Sep 30, showed output contracted by 1.8 per cent 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 per cent – 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 per cent 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.
MOFSL estimates that GDP growth may have fallen further to 6.0-6.5 per cent in Jul-Sep, data for which will be released at the end of November. The Reserve Bank of India has forecast Jul-Sep GDP growth at 7.2 per cent.
“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 per cent. 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 per cent, although it pegged the full-year projection at 7.3 per cent, 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 Sep 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.