Festive Season Powers India to World-Beating Growth

India showed more signs of a recovery taking hold in the last couple of months as its consumption-driving festive season kicked off, keeping it on track to regain the title of the world’s fastest-growing major economy.

An array of indicators compiled pointed to a continuing rebound in demand in September’21. Sentiment in the dominant services and manufacturing sectors was strong, thanks to a surge in new orders. Bank loan disbursals also grew as Asia’s third-largest economy slowly emerged from the shadows of the Covid-19 pandemic.

US President Biden’s principal mantras is that “America is back” on the international stage, having returned after a four-year absence. Nowhere was this more evident than in its energetic efforts to advance the United States’ relationship with India. If China was the competitive centrepiece of the Trump administration’s foreign policy, strategic partnership with India was one of its most important cooperative pillars.

India is a continent-sized power, stretching from the Himalayas to the Indian Ocean, and from the Arabian Sea to the Bay of Bengal. Its population is the world’s second largest. It has roughly the fifth-biggest economy in the world, which has expanded rapidly, if sometimes unevenly, since economic liberalization in the early 1990s. It is a longstanding democracy and, has held regular, contested elections since achieving independence. It sits astride crucial sea lines of communication connecting Europe, the Middle East, East Africa, and East Asia.

India’s Recovery:

The recovery coincides with the start of India’s months-long festive season beginning with Ganesh Chaturthi in September, heralding the boom season for consumption. The International Monetary Fund, as well as India’s central bank, this month estimated the nation’s gross domestic product will grow 9.5% in the year ending March — the quickest pace among major economies — after contracting 7.3% last year.

Surveys of purchasing managers at Indian factories and services companies by IHS Markit pointed to a steady expansion in activity last month, boosted by stronger new order inflows. That kept the composite index in growth territory for a second straight month. The advance was accompanied by an acceleration in input cost inflation, due mainly to a shortage of raw materials and higher commodity prices.

Exports rose about 23% year-on-year in September, while also improving 1.6% from a month earlier, led by demand for petroleum products, engineering goods, Indian coffee, and gems and jewellery. Imports too jumped, mainly due to a 254% year-on-year surge in gold purchases.

Bank credit grew 6.7% in September from a year earlier, maintaining the pace of expansion seen in August, central bank data showed. Liquidity conditions remained surplus last month, implying room for more credit off-take.

Industrial production expanded 11.9% in August from a year earlier, although the index was little changed from a month ago. While the easing of pandemic curbs likely aided the year-on-year pick-up, Bloomberg Economics sees risks to the momentum from coal shortages and a power crunch.

Similarly, output at infrastructure industries, which makes up 40% of the industrial production index, expanded 11.6% in August, with demand for coal, natural gas and cement continuing to drive activity. Both data are published with a one-month lag.

Leave a Reply