The festivities have begun with Vinayak Chaturthi today and this cheer is expected to bring much needed buoyancy to the Indian economy. In its ‘State of the Economy’ monthly bulletin, the Reserve Bank of India has pointed to green shoots due to moderation in inflation and a significant uptick in urban as well as rural demand. The central bank has spoken about recovery in urban demand by taking the example of clothing and lifestyle retailers and shopping malls. It says these businesses are experiencing a sharp recovery in sales, across price points, in the past few weeks.
This trend has raised hopes of a pick-up in demand through the rest of the festival season and cheers for discretionary retail spending. Next in line are electronics and automobile sales, which are expected to also benefit from festive buying in the upcoming Navratras and Diwali festivals. In any case, it is not just an uptick in urban spending, the prospects in India’s hinterland also appear to be improving.
The sale of two wheelers — a key indicator of the quantum of stress and thus buoyancy in the rural economy — has been the highest in August in calendar 2023. Ditto for three wheeler and motorcycle sales. And demand for work under the rural jobs guarantee programme, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), continued to decline in rural areas in August, as demand for labour for kharif crops climbed. Lesser demand for guaranteed work in rural areas showcases improved availability of work in agriculture (among other industries) and is a sure fire indicator of an improved rural economy. But tractor sales growth continued to decline due to deficient monsoon and late arrival of the festival season this year. And overall, rural inflation, at 7.02%, remained higher than urban inflation at 6.59% in August.
But a recent analysis by the State Bank of India has predicted that overall retail inflation should drop down towards the RBI’s tolerance zone, which means within the 6% range. The SBI has alluded to the spatial distribution of monsoon and its impact on Kharif sowing and subsequently on cereals’ inflation as one of the factors for its prediction. It has also taken into account a steep decline in LPG prices offsetting retail inflation.
As the Indian economy shows green shoots, the prospects for a global economic recovery appear bleak. The RBI bulletin shows that the world is becoming less global as global trade slows down and trade barriers come up, there is the looming fear of a global recession as inflation remains a definite concern.
According to the estimates from the World Trade Organisation, global trade growth will fall below GDP growth in 2023. In this gloomy picture of slowdown and rising cost of living, the growth prospects of the Indian economy offer a ray of hope.