Moneycontrol Pro Panorama | A sanguine turn of economic data

Now for FY24, India could clock a higher growth rate than earlier envisaged. As such, revisions to growth rates were already done by some even before this data was released. The latest purchasing managers' index data only adds to the confidence on manufacturing growth. PMI for manufacturing rose to 56 in November, from 55.5 in October. 

Headline numbers may dazzle, but smart policymakers dig deep to find out the parts that make this up. Therein lie the likely troubles that India’s economy may face in the rest of the year and perhaps even the next. Agriculture output has slowed to an 18-quarter low which was on expected lines due to El Nino factors and a subdued kharif output. While the upcoming rabi harvest may show resilience, the outlook for rural demand is not sanguine. As such, India’s villages and small towns are cutting down consumption as FMCG firms still lament over the lack of recovery. The dichotomy that comes with a K-shaped recovery is very much around—consumption growth is led by urban and metro cities while rural towns remain listless. No wonder, private consumption expenditure growth was a measly 3.1 percent, slower than the previous quarter and year ago.

If we go even further, the consumption maths becomes dodgy. As our Chart of the Day shows, Indians aren’t shopping much, but they are borrowing big time. The scorching growth in unsecured personal loans and credit card outstanding was touted as evidence of strong consumption growth. But national accounts hardly show this optimism. One possible explanation is that rural distress could be dragging consumption while borrowing to fulfil desires is predominantly an urban phenomenon. Even so, many questions remain unanswered on this front.
While consumption could be a key risk domestically, the biggest bugbear seems to be external headwinds. In other words, the trouble for growth will come from outside the borders. Gaurav Kapur, Chief Economist at IndusInd Bank, explains in his comprehensive GDP piece here how the external sector will influence growth prospects in the coming quarters. “Global economic activity is likely losing momentum, as lagged effects of coordinated monetary tightening, sharp increase in post pandemic debt levels and its cost of servicing and geo-economic fragmentation, slow growth of output and trade. That would adversely impact demand for India’s exports,” Kapur wrote.
That has not made economists prune their expectations for the GDP number, though. Even Kapur expects GDP to grow by a healthy 6.5 percent or even 6.8 percent if the government keeps up with its spending power. For the next fiscal year too, the outlook is buoyant. The government will spend as the ruling party races towards a national election next year and carefully navigates the four assembly polls in the meantime. This would also put cash into the hands of the people. What will the average Indian do with it is the big question that determines the fate of private consumption growth or more than half of the economy’s prospects.

The picture here is not as clear as it needs to be. The restrictions on unsecured lending would dampen the exuberance in consumption related borrowing in the coming months. Rural demand may recover, but is not expected to be significantly buoyant.

Of course, the Reserve Bank of India (RBI) is the most optimistic about growth. While its estimate for the full year is 6.5 percent, the recent comments by Governor Shaktikanta Das hint at an upside. Next week when the six-member committee meets, domestic growth drivers would give enough comfort on growth for it to focus on inflation.

Investing insights from our research team

Tata Technologies: What should investors do post the bumper listing?

Will RBI’s tightening of consumer lending norms derail Paytm’s growth?

Weekly Tactical Pick – Why this niche NBFC’s correction merits attention

Lemon Tree Hotels: Well set to ride the industry boom

Delhivery Q2 FY24: An asymmetric risk-reward opportunity

What else are we reading?

MC Pro Inside Edge: Acquirer gets hell from HNI in Shalimar Paints, barter deals, keyman risk

US yields weaken. And that's good news for equity investors

Agrochemicals exporters' revenue weakness may spill over to 2024

EV push stalls in America, but gains momentum in India

ESG factors powering energy investment decisions

Elon Musk/X: one-man band will face wrath of stakeholders he dismissed (republished from the FT) Assembly Elections 2023: December 3 won’t impact 2024 Lok Sabha polls but will set campaign ball rolling

Assembly Elections 2023: The possibilities for national politics if exit poll projections hold

Assembly Polls 2023: Exit polls a comedy of errors? Seven reasons why they can go wrong

MP Elections 2023: Exit polls add to the confusion in a closely fought contest

GDP upside may not sustain

COP28: We are not speaking the same language on climate targets

Learnings from a learning machine: Chetan Parikh shares Charlie Munger's wisdom

Elon Musk wants the Cybertruck even if you don’t

ASEAN countries vying for Indian tourists should spur India to offer better at home

Personal Finance

Axis India Manufacturing Fund new fund review: Should you invest?

Tech and Startups

Hits and misses: How ChatGPT’s first year to lure enterprise customers went

Technical Picks: Power Grid Corporation of India, Pidilite Industries, Apollo Hospitals and Tata Invest (These are published every trading day before markets open and can be read on the app)

Aparna Iyer Moneycontrol Pro