Slackening consumer demand puts brake on India's economic growth

Investment and consumption waned in India, latest high-frequency indicators show, putting a brake on growth in the world’s fastest-growing major economy.

Overall activity reading generated from eight indicators compiled by Bloomberg News suggest the economy is cooling, with the dot moving one notch to the left in March from a month earlier. That backs government’s forecast for growth to ease to just over 6 per cent -- the slowest pace in nearly two years -- in the quarter to March.
 

While uncertainty over the outcome of a general election cast a shadow on investments, consumer demand has been hit by relatively tight financial conditions. Banks’ reluctance to pass on interest rate cuts to borrowers is proving to be a bugbear for central bank Governor Shaktikanta Das, and it’s fueling expectations for at least one more quarter percentage point rate reduction in the coming months.

Here are the full details of the dashboard:

Business Activity

The seasonally adjusted Nikkei India Composite PMI Index fell to a six-month low of 52.7 in March. While a reading above 50 indicates an expansion, the latest number suggests moderation of growth in both manufacturing and services sectors. While job creation in services was at a six-month low, price pressures picked up a tad but was subdued overall.

Exports

Exports growth was a silver lining in what was an otherwise tepid month for economic activity. Outbound shipments grew at the fastest pace in five months in March. Nevertheless, a slowing global economy and the U.S.-China trade war remain a risk to exports, which has trailed growth in imports for most part of the year that ended March 31.

Consumer Activity

Consumer purchases were sluggish, with auto sales -- a key indicator for demand in both rural and urban India -- declining from a year ago. While passenger vehicle sales fell 3 per cent from a year ago, those of two-wheelers, including scooters, declined more than 17 per cent in March from a year ago.

That was due in part to a crisis in the shadow-banking sector, which was previously in the forefront of lending to consumers.

While banks have stepped in to fill the void left by shadow lenders in the past few months, loan growth in the banking sector is showing signs of moderation. Demand for bank loans grew at 13.2 per cent in March from a year ago, slowing from the 14.5 per cent pace seen in February, according to central bank data.

The Citi India Financial Conditions Index, a liquidity indicator, showed a moderate increase in March, but overall conditions were pretty tight and kept consumption in a tight leash.

Industrial Activity

Growth in India’s core infrastructure sector, which constitutes 40 per cent of total industrial production, grew 2.1 per cent in February from a year ago. That was slower than the 5.4 per cent expansion seen a year ago, as electricity generation and production of crude oil contracted.

That does not bode well for industrial production, which too slowed sharply. The index barely grew at 0.1 per cent in February from a year earlier, with capital goods output contracting sharply from a year earlier. Data for both indicators are reported with a one-month lag.