Festival season fails to revive animal spirits; India’s economic growth outlook in 5 charts

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November 29, 2018 5:46 PM

A banking liquidity crunch and weak business sentiment before state elections this year outweighed signs of a revival in consumer demand during India’s main festival season.

demand for goods and services were showing signs of recovery before Diwali.

A banking liquidity crunch and weak business sentiment before state elections this year outweighed signs of a revival in consumer demand during India’s main festival season, keeping the outlook for the world’s fastest-growing major economy muted.

An overall activity indicator measuring animal spirits — a term coined by British economist John Maynard Keynes to refer to investors’ confidence in taking action — was unchanged in October despite a slew of data from two-wheeler vehicle sales to consumer demand showing an improvement from the previous month. The measure, compiled by Bloomberg News, reflects a sharp drop in a liquidity indicator, a sign of tight financial conditions, as well as slowing growth in infrastructure industries.

The latest readings back up the view that growth is moderating in India. Data on Nov. 30 will probably show gross domestic product grew 7.5 percent in the July-September quarter from a year ago, down from 8.2 percent in the previous three months.

It also gives the central bank reason to keep interest rates unchanged next week, as most economists in a Bloomberg survey predict. Here are the full details of the dashboard:

Business Activity

The Nikkei India Composite PMI output index climbed to 53.0 in October from 51.6 in September, helped by gains in the main services index and the manufacturing output gauge. It was the strongest expansion in private sector activity since July, and came amid cooling price pressures.

Business sentiment is flagging though, with confidence among services firms dropping to a 20-month low in October, according to an IHS Markit report based on the purchasing managers’ survey. Sentiment among manufacturers also fell to the weakest since February 2017, as political uncertainty hampered confidence, it said.

Elections in five states — phased voting for which has already begun — is seen as an indicator of voter mood toward Prime Minister Narendra Modi’s government in next year’s general election.


Exports grew 17.9 percent in October from a year ago, rebounding from a 2.1 percent decline in the previous month, with a weaker rupee making shipments competitive. The uptick was driven by sectors including textiles, yarns and garments.

According to Aditi Nayar, an economist at ICRA Ltd., the rise was due to a favorable base effect as well as decent demand from China. In value terms, exports fell from a month ago, and were lower than imports, putting pressure on the trade deficit and acting as a possible drag on growth.

Consumer Activity

While demand for goods and services were showing signs of recovery before Diwali, the Hindu religious festival, economists like Teresa John of Nirmal Bang Equities Pvt. expect some sluggishness going forward. Soft food prices will hit farm income, and rural wage growth has been muted, she said, adding that the only support for rural growth will be from government spending before elections.

Data from the Society of Indian Automobile Manufacturers showed vehicle sales picking up, led by scooters and motorbikes. Commercial vehicle sales remained robust, growing nearly 25 percent year-on-year. Demand for bank loans strengthened — up 14.6 percent in October from a year ago — even though lending rates are moving up.

The Citi India Financial Conditions Index shows a considerable tightening as the central bank’s intervention in the foreign exchange market and a traditional pick-up in lending by banks in the second-half of the financial year gathered steam. The index includes indicators such as short-term money market rates, government bond yields, the yield curve, credit and credit default spreads.

Industrial Activity

Growth in infrastructure industries — which contribute 40 percent to factory output — slowed in September, due partly to a decline in the output of crude oil and subdued natural gas production. Overall, growth in the index for industrial production picked up slightly to 4.5 percent in September from a year ago.

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