Indian Economy Exceeds Forecast with 7.8% Growth

Indian Economy Exceeds Forecast with 7.8% Growth

Key Points

  • Indian Economy Growth: January-March growth hit 7.8%, driven by manufacturing, surpassing the 6.7% forecast.
  • PMI Data: PMI dropped to 57.5 from 58.8 but stayed above 50, showing continued expansion.

Manufacturing growth has experienced a slowdown recently, primarily due to a heatwave prompting some companies to reduce working hours. Despite this, overall activity in the sector remained robust. The slowdown in the expansion rate did not overshadow the strong international sales, which was a significant support factor. A recent business survey highlighted these dynamics, indicating that while domestic operations faced temporary setbacks, the global demand for manufactured goods provided a buoyant backdrop.

PMI Declines to 57.5 from 58.8, Reflecting Sector Strength

S&P Global’s most recent Purchasing Managers’ Index (PMI) was released at 57.5, indicating a decrease from the reading of 58.8. The preliminary estimate was slightly higher at 58.4. Despite the decrease, the PMI remains above the long-run average and has stayed above the critical 50-mark for nearly three years, indicating continued expansion in the manufacturing sector.

Indian Economy: Manufacturing Drives 7.8% Economic Growth

During January-March, economic growth surged to 7.8%, surpassing the expected growth rate of 6.7%. This impressive performance was largely driven by strong growth in the manufacturing sector. Economists remain optimistic, forecasting that the momentum will stay robust in the coming months. Despite adverse weather conditions, the manufacturing sector’s resilience underscores its pivotal role in economic expansion.

National Election Period Adds Indian Economy Volatility

From April 19 to June 1, the national election has also played a role in the recent economic landscape. Eagerly anticipating the results due on June 4, economists hope they will influence future economic policies. Election-related disruptions did contribute to some volatility in economic activities, but overall business sentiment remained high. Companies are hopeful that the post-election environment will continue to support economic growth.

Inflation Hits 21-Month High Amid Price Increases.

Price changes have been notable, with increases in both input and output price sub-indexes. Corporate cost burdens have accelerated, leading to the highest inflation rate in 21 months. Customer prices have also risen faster in eight months, driven by higher costs for electronic components, packaging, plastics, and steel. Since September 2023, inflation has remained between the Reserve Bank of India’s (RBI) target range of 2% and 6% despite these pressures.

Repo Rate On Hold, Inflation Below 5% Until Fiscal Year

According to a Reuters survey, experts anticipate that the Reserve Bank of India will maintain the repo rate at its June 7 meeting. However, a rate cut is anticipated in the October-December quarter. This cautious approach reflects the balance between supporting growth and managing inflation, with current predictions suggesting that inflation will remain below 5.0% until the end of the fiscal year 2025-26.