In recent weeks, commentary from the Reserve Bank of India has been optimistic about the economic growth momentum in the country, underlining its resilience. For instance, in his comments on the October meeting of the Monetary Policy Committee, RBI Governor Shaktikanta Das, had said that the “fundamental drivers — consumption and investment demand — are gaining momentum”. The central bank had then pegged the economy to grow at 7 per cent in the second quarter, and 7.2 per cent over the full year.
However, some leading economic indicators do seem to suggest that the momentum might have slowed down.
For instance, on the production side, the index of industrial production actually fell by 0.1 per cent in August. Industrial output has grown at 4.2 per cent in the financial year so far (April-August), down from 6.2 per cent over the same period last year. Similarly, eight core industries, including cement and steel, have grown at a slower pace this year as compared to last year. Both Coal India’s output and power generation have also been weak.
In September, GST collections grew by 6.5 per cent. As per FADA, sales of passenger vehicles have grown at just 1 per cent in the first half of the financial year, while those of commercial vehicles have actually fallen. However, other indicators have been relatively healthy — two-wheeler output is up, as are non-oil exports and cargo traffic at ports. As per ICRA, value added is expected to grow at 6.4 per cent in the second quarter, down from 6.8 per cent in the first quarter.
The state of the economy report, prepared by economists at the RBI, acknowledges this “slackening of momentum” in the second quarter, but has attributed it to “idiosyncractic” factors such as the heavy rains. It has, however, estimated growth for the second quarter a tad bit slower at 6.8 per cent. But the study expresses confidence about the growth momentum arguing that private investment “is showing some encouraging signs”, while private consumption “is shaping up” for a revival in the festive season.
Greater clarity on the underlying growth momentum in the country will emerge when the National Statistical Office releases the second quarter GDP estimates next month. This data release will be followed by the December meeting of the RBI’s monetary policy committee. A lower than expected GDP estimate for the second quarter might force the RBI to revise downwards its growth estimates for the full year. This could perhaps tilt the balance away from the status quo maintained by the committee on interest rates.
