By India Today Business DeskA slowdown in consumption has put India’s world-beating economic growth at risk. Falling demand has now started impacting various aspects of economic growth, as per high frequency growth indicators.
While economic activity picked up pace in December 2022, it has remained fairly unchanged since the beginning of the year. This signals that growth is slowing down in the country, primarily dragged down by slugging demand and consumption.
In fact, eight high-frequency indicators tracked by Bloomberg highlighted moderating credit growth, weaker tax revenues and a rising unemployment rate.
Impact of demand slowdown on growth
India’s GDP growth has been weakening over the past few quarters, and it slowed to 4.4 per cent in the December quarter.
This is directly related to a consumption slowdown, triggered by non-stop rate hikes by the Reserve Bank of India (RBI) in order to tackle inflation.
With the central bank expected to hike interest rates again in April, growth could further slowdown due to weaker demand for goods.
Tackling inflation, however, remains the primary objective of the RBI, in line with the strategy adopted by major central banks around the world.
But this non-stop rate hike cycle is eating into demand and consumption, which are essential indicators of future economic growth.
While manufacturing activity expanded at slower pace, there are chances that a slowdown in demand will impact these indicators in future.
This could result in lacklustre job growth and a sluggish business environment, according to Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.
“The degree of optimism recorded in February was the lowest for seven months and below the historical trend as some companies doubted demand would remain this resilient,” De Lima said.
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Credit growth, tax revenue collection
The era of cheap money is coming to an end after the Covid-19 pandemic and it has had a direct impact on credit growth.
Credit growth moderated to 15.52 per cent in February from 16.33 per cent in January, showed RBI data. This indicates that the appetite for credit among businesses and individuals has been declining due to the non-stop rate hikes since last year.
Meanwhile, another important measure of consumption, GST revenue collections, fell to Rs 1.49 lakh crore in February from Rs 1.56 lakh crore in January. While GST revenue collection in February was higher on a year-on-year basis, the sequential numbers show a declining trend.
These indicators suggest that consumption and demand are gradually slowing down, which could reduce inflation, but ultimately lead to a slowdown in future economic growth.
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Trace Hane
Kole Prosacco
Julian Marks