India's economy has been among the fastest growing in the world. In the previous financial year ended March 2024, it surged 8.2 per cent, exceeding estimates. Most expect the economy to grow strongly this financial year too. According to the Reserve Bank's projections, the GDP will grow 7.2 per cent this year. However, recent data trends are presenting a mixed picture, making one wonder if a slowdown is around the corner.
"There is some incipient pressure evident on the domestic economy," warns the latest report by the State Bank of India's research department.
It expects India's GDP to have clocked a growth of around 6.5 per cent in the July-September quarter, which, along with the third and fourth quarter numbers, could push the overall financial year 2025 GDP growth closer to 7 per cent.
Soumya Kanti Ghosh, group chief economic adviser at SBI, pointed out that several high-frequency indicators signalled that aggregate demand continued to grow, albeit with a slower momentum than in the preceding quarters and painting a somewhat mixed picture.
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For instance, domestic passenger vehicle sales, which is an indicator of urban demand as well as other indicators of consumption and demand such as diesel consumption, electricity demand and bitumen consumption, have eased, he noted. But, at the same time, transport and communication indicators like passenger and freight traffic at airports and toll collection are showing traction.
SBI's research department tracks around 50 leading indicators in consumption and demand, agriculture, industry, service, and other indicators.
The section of indicators showing acceleration declined to 69 per cent in the second quarter of FY2025 versus 80 per cent in the year-ago second quarter and 78 per cent in the first quarter of this financial year. Ghosh believes it could well be a temporary impasse with the narrative changing from the third quarter onwards.
What will be comforting for policymakers is that rural demand is recovering, tractor sales jumped in October, rural agri wage growth accelerated in August, and two-wheeler and three-wheeler sales continue to show consistent growth, noted Ghosh.
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The report pointed out that every month in the first half of this year, rural consumer sentiment was over 100 and gradually converged to that of urban consumer sentiment.
"The recent buoyancy in rural demand/ consumption, juxtaposed against the somewhat declining urban demand/ consumption, with 85 per cent of rural indicators showing acceleration as against 73 per cent of urban indicators could be indicative of shifting contours of urban demographics, marked preferences to quick commerce outweighing consumption decisions to some extents," he felt.
A higher consumer sentiment in rural areas will lead to higher consumer spending, supporting rural markets, job creation and income generation, the report argued.
The SBI report reiterated that governments should refrain from policy mistakes. It continues to believe that farm loan waivers have been a "self-inflicted harakiri" that distorted the credit culture of borrowers and "not even marginally serving" the purpose in the medium to long term. Similarly, it argued that only MSP (minimum support price) driven agriculture growth is more "fiscally extravagant" and results in extreme groundwater depletion.
