Services, trade help power steady economic recovery in India

India’s economy showed steady signs of strengthening in October as services, manufacturing and exports kept it on course to post the world’s fastest growth.

Demand during India’s so-called festive season has helped keep momentum rolling, as shown by a fourth straight month unchanged at a 5 on the Bloomberg News ‘Animal Spirits’ gauge of indicators, which uses a three-month weighted average to smooth out volatility in single-month readings. The measure reflects strength in services and new orders last month, as well as a rebound in exports. 

The steady pace will help India stay on path toward being the world’s fastest-growing major economy this year. Data due Nov. 30 will probably show gross domestic product in the July-September period grew 8.2% from a year ago, according to a Bloomberg survey, following a record 20.1% expansion the previous quarter.

Below are the details of the dashboard. (For an alternative gauge of growth trends, follow Bloomberg Economics’ monthly GDP tracker—a weighted index of 11 activity indicators.)

Business Activity

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

Exports

Exports rose 43% year-on-year in October, almost doubling the growth rate of September, led by demand for petroleum products, engineering goods and Indian coffee. Imports jumped 63%, mainly due to a surge in inbound shipments of pulses, coal, crude oil and newsprint.

Consumer Activity

Retail auto sales, a bellwether of consumer demand, bucked the expansionary trend. Sales of passenger vehicles, which include cars and SUVs, fell 27% from a year ago as carmakers cut production due to a global chip shortage and steep hike in raw material costs. Two-wheeler sales—an indicator of animal spirits in smaller towns—also declined.

Bank credit grew 6.8% in October from a year earlier, picking up a tad from the 6.7% level seen in the previous month, central bank data showed. Liquidity conditions remained surplus last month, implying room for more credit off-take.

Industrial Activity

Industrial production expanded 3.1% in September from a year earlier, a relatively slower pace compared with the first five months of the fiscal year, which is attributable to the wearing off of a favorable base effect. 

Similarly, output at infrastructure industries, which makes up 40% of the industrial production index, expanded 4.4% in September, with demand for coal, natural gas and cement continuing to drive activity. Both data are published with a one-month lag.