India’s economy buoyed by busy festival period
India’s economic activity index grew at a five-month high of 7.5% in October, driven by increased economic activities during the festival period, according to the latest CareEdge Economic Meter (CEM).
The research found that out of the 18 high-frequency indicators that are used in the CEM calculation, nine had seen a significantly higher annual growth in October compared with the previous month.
According to CareEdge, GST (Goods and Services Tax) collections in October grew 13.4% year-on-year to Rs 1.72 trillion (£16.5 billion), which was the highest growth in the past 10 months.
The research also found that e-way bill generations jumped to an all-time high of £958 million in October, recording an annual growth of 30.5%, driven by improving sales.
India’s exports of goods grew by 6.3% in October, with merchandise imports growing twice as much, by 12.4%.
Both passenger vehicle and two and three-wheeled vehicle sales grew in October, seeing double-digit growth. Passenger vehicle sales grew by 16.7% year-on-year, up from 5.1% in September, while two and three-wheeled vehicle sales jumped by 17.2%, compared with just 2% growth in September.
CareEdge said other indicators that performed well supporting the overall economic index included rail passenger and freight traffic, credit growth and power consumption.
However, weakness in the rural labour market was highlighted by the index. “A spike in rural joblessness caused the unemployment rate to surge beyond 10% in October 2023, the highest level seen in more than two years. Though rural unemployment generally goes up in October every year due to seasonal factors, the increase was much sharper this year owing to the weak monsoon,” it said.
Both manufacturing and services sectors saw a moderation in growth due to slowing demand and higher costs in October, as reflected by the Purchasing Managers’ Index (PMI) numbers, CareEdge said. Manufacturing PMI slowed to an eight-month low of 55.5 whereas services PMI fell to a seven-month low of 58.4. A PMI figure of more than 50 represents growth; below 50 represents a contraction.
Meanwhile, the Reserve Bank of India (RBI) said in its November bulletin that India’s GDP in the October-December period is expected to see a rise from the previous quarter. The central bank said India “is poised to maintain its growth momentum as strong macroeconomic fundamentals impart resilience in the face of global headwinds”.
RBI’s economic activity index forecasts GDP growth for Q3 FY24 at 6.3%, the bulletin said.
It added that investment in the private sector is beginning to pick up as funds intended for capital expenditure raised by corporates through different channels—from banks/financial institutions, external commercial borrowings, and initial public offerings—during the first half of FY24 were 60% higher than during the second half of FY23.
Inflation still a threat to growth
The RBI report also flagged inflation as one of the “persistent downside risks”. It said: “With more than half of the current financial year witnessing positive developments in the economy, the full financial year should conclude as projected with a strong growth performance and macroeconomic stability. Yet, risks on the downside persist. Inflation is one of them that has kept both the government and the RBI on high alert.”
However, it added that the decline in international crude oil prices is likely to control inflationary pressures going forward.
Highlighting projections of a GDP growth rate of 6.2% and 6.7% by various agencies, the report said the government’s sustained investment push, healthy corporate profits, and a reduction in bank non-performing loans will likely keep investment buoyant, despite higher input costs. India’s exports are also expected to perform well, driven by strong performance in the services exports sector.
