As of November 4, 2024, India’s economic landscape presents a mix of growth and challenges. Here’s an overview of the latest developments:
Manufacturing Sector Growth
India’s manufacturing sector experienced accelerated growth in October, as indicated by the HSBC final India Manufacturing Purchasing Managers’ Index (PMI), which rose to 57.5 from 56.5 in September, surpassing the preliminary estimate of 57.4. This improvement was driven by strong demand, both domestically and internationally, leading to increased new orders and output. Consequently, job creation saw a significant rise, although it is predicted that overall job creation may remain limited in the next year. Inflationary pressures also increased, with input and output prices climbing due to higher material costs, wage bills, and transportation fees. Despite inflation reaching a nine-month high of 5.49%, economists expect the Reserve Bank of India to potentially cut interest rates in December from 6.50% to 6.25%. The upbeat market outlook is buoyed by expectations of sustained consumer demand and new product introductions.
Economic Growth Projections
The Indian government’s monthly economic report has maintained the current growth forecast of 6.5% to 7% for the fiscal year, despite external risks such as geopolitical conflicts and uncertain global trade policies. These risks could impact household sentiment and spending on durable goods. The report cites a positive agricultural outlook and expected higher demand during the festive season as supportive factors for the economy. It also notes improvement in rural demand, while urban demand shows signs of moderation. Retail inflation remains controlled, except for potential sharp increases in vegetable prices, particularly for tomatoes, onions, and potatoes. The report emphasizes the need to monitor underlying demand conditions and control short-term food prices.
Foreign Investment Trends
In October 2024, foreign investors withdrew over $10 billion from Indian stocks, marking the largest monthly pullout since the pandemic began. Concerns about the end of the bull market, weakening corporate earnings, an economic slowdown, and central bank measures to curb retail lending led to the worst monthly losses for Indian indices since March 2020, alongside a depreciating rupee. The shift in investor sentiment was exacerbated by caution surrounding the US elections and a recent rally in Chinese shares, which attracted investment away from India. Additionally, sluggish earnings reports and declining consumer confidence further eroded enthusiasm for Indian stocks. A significant moment was the poorly received IPO of Hyundai’s Indian business, reflecting broader concerns over inflated valuations in a slowing market. Despite this, some market participants remain optimistic about future opportunities. However, economic indicators like slower GDP growth and dipping vehicle sales signal a possible prolonged downturn unless Indian authorities enact supportive monetary and fiscal policies, with some experts advocating for rate cuts to stimulate the economy.
Monetary Policy Outlook
A narrow majority of economists in a Reuters poll anticipate that the Reserve Bank of India (RBI) will cut its key policy rate by 25 basis points to 6.25% in December to support slowing economic growth, as inflation is expected to moderate in the near term. Despite inflation rising to 5.49% in September, it is projected to average 4.9% this quarter and fall to 4.6% in January-March. The central bank has maintained interest rates since early 2019, but the economic outlook suggests a shift towards monetary easing. While forecasts indicate India will remain the fastest-growing large economy, growth is expected to decline slightly. Economists are divided on further rate cuts, with some predicting another cut in February, but uncertainty remains over further easing due to persistent inflation above the 4% target.
Environmental Regulations and Economic Impact
In the past three weeks, authorities in New Delhi and surrounding areas have fined thousands of vehicle owners and construction sites for violating pollution norms. According to the Swiss group IQAir, New Delhi is the most polluted city in the world. Fines were imposed on nearly 60,000 vehicles and over 7,500 construction sites. The Central Pollution Control Board (CPCB) rated Monday’s conditions as “very poor” with a score of 373 on its index. Additionally, more than 54,000 vehicles lacked the pollution under control certificate, and nearly 3,900 were impounded for being “excessively old.” Environmental penalties were ordered for 597 sites, and 56 were forced to shut down. Air quality is expected to remain “very poor” until Wednesday, with estimates that it will range between “very poor” and “severe” in the following days. Rising pollution can reduce a South Asian’s life expectancy by more than five years. Lahore, Pakistan’s second-largest city, also faces high pollution, closing primary schools and planning talks with India to address the issue.
These developments highlight the dynamic nature of India’s economy, with sectors like manufacturing showing resilience, while external factors and environmental challenges pose ongoing concerns.