In August, India’s economy showed signs of being poised to accelerate, with the services sector beginning expansion and manufacturing activity maintaining its upward trend.
Two of Bloomberg News’ eight high-frequency indicators accelerated last month, while five were unchanged and one slowed. However, because the gauge employs a three-month weighted average to smooth out volatility in single-month readings, the needle on a dial gauging so-called animal spirits remained steady from the July level. The monthly increase in services and manufacturing activities corresponded with a decrease in new Covid-19 cases and an increase in vaccination rates, with more than 834 million doses administered so far in the 1.3-billion-person country. However, only about a fifth of the population is fully vaccinated, raising the possibility of a third wave of infections.
Last month, factory managers in India reported an increase in new orders, allowing businesses to maintain their bullish growth forecasts. A comparable study of buying managers in the services industry revealed a resurgence of corporate optimism in the face of reducing virus restrictions. For the first time in four months, the composite index entered expansion territory.
In August, exports increased at a constant rate of around 46 percent year on year, despite the fact that the strong growth was primarily attributable to the effect of a contraction in the previous period. Data from other export powerhouses revealed a mixed picture, with South Korea reporting higher growth and Vietnam experiencing a severe drop due to Covid outbreaks.
Retail auto sales, which are a leading indicator of consumer demand, displayed a mixed picture. While passenger vehicle sales increased year over year, two-wheeler sales fell, indicating a drop in animal spirits in smaller communities.
According to central bank data, bank credit increased 6.7 percent year over year in August, up slightly from the 6.5 percent level reported in mid-July. Last month, liquidity circumstances remained favorable, indicating that there is still room for further loan demand. Industrial production increased 11.5 percent year over year in July, a slower rate than in the first three months of the fiscal year, which began in April, and owing to the fading of a favorable base effect.
Similarly, infrastructure industry output increased 9.4% in July, accounting for 40% of the industrial production index, with demand for coal, natural gas, and cement boosting activity. Both sets of data are released one month apart.