Moneycontrol Pro Panorama | India firmly on growth path

Policymakers in India seem to have balanced the growth-inflation conundrum well

Dear Reader,

India’s manufacturing activity hit a 31-month high, according to the S&P Global Purchasing Managers’ Index for India’s manufacturing released a few hours ago. At 58.7, the index for May surprised positively on many counts. It rose significantly from 57.2 in April with factory orders rising fastest since January 2021.

The data underscores the optimism seen in gross domestic product (GDP) growth for the March quarter (Q4) and FY2023. Q4’s GDP growth of 6.1 per cent that was astoundingly higher than the estimated 5.1 per cent portrayed manufacturing in the lead. In the spotlight was the strong jump in contribution from construction activity -- the highest since September 2011.

Indeed, this is not surprising, given the government’s steadfast commitment to push the pedal on infrastructure activity, a strategy lauded by economists to help the economy bounce back from the pandemic blues. Add to this, private sector capex is back as also mirrored in the strong Q4 order flows in the already robust order books of capital goods and infrastructure companies.

Manas Chakravarty’s analysis in this article gives a rounded view of what powered March quarter GDP growth and what are the shortcomings still. Private consumption remained lukewarm and there are risks to the moderating food inflation from the vagaries of El-Nino. “One criticism of the recovery has been that it is K-shaped, with the weaker sections of the population struggling to get back on their feet after the pandemic,” adds Chakravarty.

Whether improvement in the rural economy and the trickle-down effect of improved construction and real estate activity help in making growth more equitable remains to be seen.

Nevertheless, a lot of uncertainty risks abound. For instance, while India’s resilient domestic economy may be able to offset the pain from slowdown in global economies, a deep recession is bound to have repercussions.

Talking of business confidence, the S&P PMI report highlights that business confidence towards growth prospects improved to a five-month high in May.

However, the impact of higher interest rates and relatively high inflation could dampen consumer sentiment in the near to medium term. Some sectors such as textiles have been feeling the heat of slowdown in global export orders and domestic discretionary spending.

One thing is certain. Policymakers in India seem to have balanced the growth-inflation conundrum well. For now, there are less downside risks to growth than there were even a year ago and compared to most other economies. India’s manufacturing PMI is far higher than that of other economies in Asia, except for Thailand, whose manufacturing sector is also seeing a strong recovery.

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Vatsala KamatMoneycontrol Pro