India’s festival season does little to spur growth outlook

MUMBAI • 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 today will probably show GDP grew 7.5% in the July-September quarter from a year ago, down from 8.2% 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.

The Nikkei India Composite Purchasing Managers’ Index output index climbed to 53 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.

Exports grew 17.9% in October from a year ago, rebounding from a 2.1% 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 favourable 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.

While demand for goods and services were showing signs of recovery before Deepavali, economists expect some sluggishness going forward.

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% year-on-year.

Demand for bank loans strengthened — up 14.6% in October from a year ago — even though lending rates are moving up.

Growth in infrastructure industries — which contribute 40% 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% in September from a year ago. — Bloomberg