Persistent Aggregate Demand Keeps India On Track to World’s Fastest Growth

Latest high-frequency indicators have shown the impact of pandemic restrictions were less severe than last year, enabling demand to recover quickly in the consumption-driven economy. Loans for consumer durables and vehicle purchase as well to real estate and small businesses grew in July, both month-on-month and from a year earlier, data published by the Reserve Bank of India showed.

That’s backed by optimism of factory managers in India, who saw a surge in activity in July amid a pick up in new orders, while a similar survey of services’ purchasing managers showed the sector was inching back toward expansion. Exports, which account for nearly a fifth of the economy, have been growing for the past eight months signaling strong global demand.

“The recovery from the second wave has been faster with activity indicators recovering lost ground in less than three months compared to 10 months in the first wave,” said Gaura Sen Gupta, an economist with IDFC First Bank. “High frequency growth indicators show that the economic cost of the lockdowns was lower.”

The milder hit to the economy coincides with India’s vaccination rate picking up pace over the last few weeks. And there’s room for further improvement, given that the country has managed to inoculate only just over 10% of it’s population — a key vulnerability given risks from a possible third wave of infections.

India started seeing a swift recovery in June and the July-September quarter has been very good so far, Shubhada Rao, founder at QuantEco Research in Mumbai, told Bloomberg TV on Tuesday. But risks loom in the form of an impending third wave and a disappointing monsoon, she said.

The threat from the pandemic has kept the nation’s central bank from unwinding its ultra-easy monetary policy, with Governor Shaktikanta Das reiterating that policy makers wouldn’t reverse course suddenly despite mounting inflationary pressures.

Prime Minister Narendra Modi plans to complement the monetary stimulus with fiscal measures. His government aims to raise 6 trillion rupees ($81.9 billion) by leasing out state-owned infrastructure assets over the next four years to fund new capital expenditure without further widening the budget deficit.