A major portion of the Indian economy, 55 per cent, is witnessing an upward trend despite fluctuations, recent report by HSBC Global Research.
The report noted that the economy was falling into a moderate track following a period of rapid stock market gains and robust GDP growth.
Analyzing 100 growth indicators, it was observed that even though most of them remain positive, the amount of positive indicators has fallen from 65 per cent in the previous quarter, indicating a economic slowdown.
The report highlights that certain sectors are performing exceptionally well, with promising long-term prospects.
However, indicating the slowdown, it adds, “While a lower proportion of the economy seems to be growing positively compared to a quarter ago (55 per cent vs 65 per cent), the majority of indicators are still positive. And while investment activity (especially construction and public sector led) is holding up, consumption related ones are slowing.”
It referred to growth in specific sectors, noting that agriculture has achieved significant improvement, contributing 15 percent to the GDP, has shown signs of improvement, with 60 percent of its indicators reflecting a positive trend.
The report noted that earlier disruptions in production caused by irregular rainfall and heatwaves during the monsoon season have been offset by a return to normal temperatures and adequately filled reservoirs, boosting future prospects.
Besides any unforeseen shocks, the agriculture sector is expected to show further growth in the coming months.
The analysis further highlights that the government’s current and capital expenditure has been steadily increasing, driving a surge in investments.
It also shows that the credit to industries, especially small and medium enterprises, is expanding rapidly and robust digital public infrastructure has enhanced credit accessibility.
Construction activities remain strong, supported by ongoing real estate and infrastructure projects, although the pace has slightly slowed.
The report also highlights a diversification in India’s export basket, noting that the shift towards professional services is playing a key role in sustaining export growth.
It pointed out that consumption in both rural and urban areas has slowed, with a decline in manufacturing output for consumer goods, though construction-related goods have remained steady.
The decline in consumer loans, especially unsecured loans, is linked to the Reserve Bank of India’s (RBI) efforts to rein in excessive credit growth, according to the report.
Mining and utilities have experienced a sharp downturn, with none of their indicators showing positive growth this quarter. Additionally, the normalization of weather conditions has reduced electricity demand, which had previously spiked during the heatwave earlier in the year.
The communication sector has experienced a slowdown, likely due to the effects of tariff hikes earlier this year. While trade and transport are still struggling to recover, tourism-related activities are flourishing, fueled by pent-up travel demand.
The financial sector is also showing contraction, as per the report.
The report notes that while industrial finance remains strong, bolstered by growing credit to small enterprises, consumer finance has weakened due to regulatory measures aimed at reducing over-leverage in the personal loans market.
It also acknowledges the contributions of sectors such as electronics manufacturing, digital startups, and Global Capability Centres but observes that these sectors are now normalizing.
“The exuberance in electronics manufacturing, Global Capability Centres, and digital start-ups, led to high growth and incomes at the top of the pyramid. But after a few heady years, the base is rising, and growth in these sectors is normalizing to more sustainable levels,” the report said.
“Overall GDP growth is gradually converging from 7 per cent + levels to a more sustainable but still strong ‘potential growth’ level of 6.5 per cent. If the improved prospects for agriculture stick, this new growth clip could be more equitably spread,” the further added.
