Upgraded forecasts and resilient domestic indicators point to sustained momentum in India, although weaker global demand and weather disruption remain threats.
India’s economy is still expanding at a healthy pace, even as the international backdrop remains difficult. A string of recent forecast upgrades points in the same direction: Moody’s has lifted its growth estimate, the Asian Development Bank has also turned more optimistic, and the OECD now expects stronger expansion than it did earlier in the year. That firmer tone is echoed in the Reserve Bank of India’s latest State of the Economy report, which says a broad set of high-frequency indicators suggests activity remains resilient across manufacturing and services.
The domestic data are encouraging. Goods and Services Tax receipts have posted double-digit year-on-year gains for four consecutive months, while electricity demand and petrol consumption have stayed solid. Industrial production rose 6.8 per cent in the first half of the year, and consumer demand appears to be holding up in both cities and the countryside. Passenger vehicle sales have advanced strongly in both markets, while two-wheeler and tractor sales have been particularly firm in rural India, a sign that household sentiment has not weakened as sharply as some had feared.
Trade and public spending are also helping to support growth. Merchandise exports rose 18.5 per cent in the first two quarters of the year, helped in part by the weaker rupee, and the central government’s capital expenditure climbed 18 per cent between April and August. Moody’s said earlier this year that stronger-than-expected data, including robust manufacturing and heavier government investment, justified a higher forecast for India. The OECD, for its part, has argued that India’s resilience owes much to domestic demand and policies that have cushioned households and firms from higher energy costs.
Still, the strength should not obscure the risks. The OECD has warned that weaker global demand and weather-related disruptions could weigh on growth, while the RBI has been careful to note that the economy is not insulated from external shocks. For now, though, the balance of evidence suggests India is entering the second half of the year with considerable underlying momentum. The task for policymakers is to preserve that momentum while staying alert to the pressure points that could yet slow it.
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