India: Amid Elections And Tensions With War, Inflation Hits Six-Months High
With its ongoing elections whose results are to be announced on 23rd May and continuous military tensions with its archrival, Pakistan, there has been some ‘not-so-good’ news about Indian economy. According to the latest figures by the Statistics Ministry of India, inflation figures have hit six-months high and reached to 2.92%. While the figure is slightly below the median estimate by Bloomberg which predicted 2.99% and well below the target of the Reserve Bank of India (RBI) of 4%, it still has certain implications.
However, news that is more serious relates to passenger vehicle industry that saw the worst sales figures in 8 years. According to the Society of Indian Automobile Manufacturers data release, sale of passenger vehicle fell by 17.1% as compared to the previous year. Similarly, sale of overall automobile vehicles has dropped by 16%.
According to another factory output figures announcement last week, factory output also shows the first contraction in the last two years.
The RBI forecasts the CPI to reach 3.5- 3.8% in Oct-March and it is gearing up to formulate policy in this regard.
The policy is to be announced next month, soon after the result of Indian General Elections is announced. Policymakers are also keenly observing global crude oil prices and likely impact of Monsoon rains on various crops, and how these factors may correlate with inflation in upcoming quarters.
The Slowdown Seems To Be Spreading Across Industries And Market Sentiments Are Not Good
From car sales to tourism and consumer goods, the slow economic pace has been observed in various industries. For example, air traffic in India has been among the fastest growing aviation markets globally and recently it witnessed slowest growth pace in six years.
Similarly, bank loans demand grew at just 13.2% in March 2019, compared with 14.5% in February.
Moreover, the country’s biggest consumer staples maker, Hindustan Unilever Ltd., reported its weakest quarterly revenue growth in 18 months, i.e. 7%. Overall, economic growth of 6.6% for quarter Jan-March quarter has been the slowest in six quarters.
As an indicator of a slowing economy, Shaktikanta Das, Governor RBI, has already delivered rate cuts in two previous policy meeting in order to boost credit.
With inflation under control and economy slowing down, economists and market observers are expecting further cuts of up to 25 basis points in June.
Within one week into Election result announcement, the next economy pulse check for India comes on 31st May when GDP figure for March quarter is due.