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India’s Animal Spirits Are Hushed as Consumer Demand Remains Elusive

Anirban Nag
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India’s Animal Spirits Are Hushed as Consumer Demand Remains Elusive

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India’s economic growth showed little signs of a recovery from a six-year-low, with investment and consumption activity in August remaining fairly subdued.

The dial on a gauge measuring overall economic activity was stuck in the same position as the previous month, with two of the eight high-frequency indicators compiled by Bloomberg News showing weakness and five others staying steady. Car sales in August slumped the most on record while demand for bank loans weakened, underlining worsening consumer spending.

The dashboard measures “animal spirits” -- a term coined by British economist John Maynard Keynes to refer to investors’ confidence in taking action -- and uses the three-month weighted average to smooth out volatility in the single-month numbers.

The reading, which comes ahead of the central bank’s monetary policy decision next week, strengthens the case for more measures to bolster growth. Since late August, the government has unveiled a series of steps, including $20 billion in corporate tax cuts, to support the economy after growth cooled to 5% in the quarter ended June -- the weakest expansion since March 2013.

Here are the details of the dashboard:

Business Activity

Activity in India’s private sector eased in August from a month ago, reflecting a slowdown in new business. The weakness in both manufacturing and services activity was reflected in the purchasing managers surveys, contributing to a fall in the composite index to 52.6 during the month from 53.9 in July.

While input prices for services and the manufacturing sector rose during the month, manufacturers refrained from passing on costs amid efforts to boost sales.

Subdued price pressures are likely to give the central bank space to continue easing monetary policy, after already lowering the benchmark interest rate by 110 basis points so far this year.


Exports fell 6.1% in August from a year earlier, against a 2.3% rise in the previous month, with economists attributing the decline to an adverse global trading environment, and base effects. Weak domestic demand dragged down imports, helping keep the trade gap broadly unchanged from a month ago.

Consumer Activity

Consumer spending was muted, including in rural areas. That backs a recent report by market researcher Nielsen that lowered its 2019 growth forecast for the fast-moving consumer goods sector to 9%-10% from an earlier estimate of 11%-12%.

Urban consumers curtailed spending as well, as the growth slowdown triggered fear of job losses.

That sentiment is weighing on demand for loans, with overall credit growth reaching 10.3% in August -- the slowest pace of expansion in more than a year -- and down from 14.2% in April, according to central bank data.

The Citi India Financial Conditions Index, a liquidity indicator, showed overall conditions tightening.

Industrial Activity

India’s core infrastructure industries’ output, which constitutes 40% of total industrial production, grew 2.1% in July from a year ago. The data offered mixed cues, with moderately healthy growth in cement and steel offsetting a contraction in coal, crude oil, natural gas and refinery output.

Industrial output growth accelerated to 4.3% in July from 1.2% in June. While the headline number showed a bounce, the production of capital goods -- an important indicator of future demand-- contracted for a third straight month. Both core sector and industrial output numbers are reported with a one-month lag.

--With assistance from Hannah Dormido and Don Ong.

To contact the reporter on this story: Anirban Nag in Mumbai at anag8@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Karthikeyan Sundaram

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