India's economic recovery stumbles, setting stage for sustained low rates

xizhimen · Jul 29, 2021

India's economic recovery stumbles, setting stage for sustained low rates

A contraction in India's services sector deepened as localized curbs to control the virus spread hurt consumer demand and business activity

Indian Economy | Economic recovery | Services sector

Anirban Nag | Bloomberg Last Updated at July 29, 2021 09:19 IST

India’s economy showed signs of cooling in June as the slow easing of localized lockdowns hurt activity, a factor likely to encourage monetary policy makers meeting next week to consider keeping interest rates at record lows to foster a durable recovery.

Contractions in both manufacturing and services sectors, which contribute more than two-thirds of India’s gross domestic product, pulled the needle on an overall activity indicator to 5 from 6, a level not seen since February and the first downward shift since May 2020 data. The gauge uses a three-month weighted average to smooth out volatility, and a move left signifies loss of momentum.

While the deadly second wave of Covid-19 has receded, the economy is facing a bumpy ride given the slow pace of vaccinations and the looming threat of another wave. A basket of high-frequency, alternative and market indicators such as retail activity and road congestion isn’t showing the kind of strong recovery that was expected, Abhishek Gupta, India economist at Bloomberg Economics, said in a report published Tuesday.

Here’s more India data coming in the days ahead:

Goods and services tax data released by the Finance Ministry around the first week of every month is a key indicator of consumption
Auto sales published by companies such as Maruti Suzuki India Ltd. and Hero MotoCorp Ltd. on the first day of every month serve as an indicator of consumer demand
Surveys of purchasing managers by IHS Markit, out early next month, will offer an early glimpse of manufacturing and services activity
July unemployment rate from research firm Center for Monitoring Indian Economy Pvt. will be out early next week, offering a window on the labor market in the absence of real-time official data
Reserve Bank of India interest-rate decision on Aug. 6

Here are the details of the dashboard for June:

Business Activity

A contraction in India’s services sector deepened as localized curbs to control the virus spread hurt consumer demand and business activity. The Markit India Services Index declined to 41.2 last month, from 46.4 in May, with a reading under 50 indicating a contraction. A similar survey also pointed to shrinking activity in the manufacturing sector, both of which dragged the composite index deeper into contraction territory.