India’s economy picks up but rising prices threaten recovery

India’s economy picks up but rising prices threaten recovery



The surge in holiday spending has boosted hopes that India will once again become the world’s fastest-growing large economy, despite analysts’ warnings that consumers and businesses in the country are still hit by the coronavirus pandemic and face severe challenges. Challenge.

According to data from Nomura Securities, sales of Diwali, the Hindu festival of lights celebrated last week, soared to a record 1.25 billion rupees (US$16.8 billion), an increase of 75% over last year and much higher than the usual 20% annual growth.

The surge highlighted how economic activity rebounded sharply, fueling bullish sentiment. This is partly due to the sharp drop in daily Covid-19 cases from 400,000 in May to approximately 11,000, when a brutal wave of infections overwhelmed the health system.

Other indicators such as mobility and power demand also rebounded.But economists are divided on the sustainability of the rebound because Price increased Consumers and coal shortages threaten industrial output.

“The number of cases has decreased… TS Lombard India Research Senior Director Shumita Deveshwar said that because Diwali last year was quite low-key, everyone went out, about this time. “This is a short-term boost. I don’t know if it will turn into a long-term recovery. “

The International Monetary Fund predicts that in the year to March, India’s GDP will grow by 9.5%, compared with China’s 8%, and more than any other large economy. However, this reflects a correction after a 7.3% contraction last year, and the size of the economy has hardly changed compared to two years ago.

India will release its latest inflation and industrial production data on Friday, which is expected to highlight some of the challenges still facing economic recovery.

Since the summer, industrial output growth has been slowing down, and the global semiconductor shortage has forced substantial cuts in the automobile manufacturing industry and other factors have exacerbated this trend.recent Coal shortageIndia’s main source of electricity has prompted the government to transfer fuel from industries such as steel plants to the power system.

Analysts said the power squeeze threatens the output of metals and other core materials. “This will obviously have spillover effects on other industries,” said Aurodeep Nandi, an economist at Nomura Securities. “I don’t think we have reached the stage where all of this has not been reflected in the data.”

At the same time, retail inflation has fallen from over 6% in June to 4.3% in September. But continued price increases hurt consumers, which prompted the government to cut taxes on gasoline and diesel this month.

“The indicators we saw paint a mixed picture,” Nandy added. “This is the challenge of understanding the current growth situation.”

The research institute Oxford Economics says that further progress is needed to vaccinate the Indian population to support the economic recovery.

India has over Half of the population, A quarter is completely vaccinated. Oxford University predicts that by the first quarter of next year, 70% of Indians will be fully vaccinated.

“The growth momentum does seem to have weakened,” said Priyanka Kishore, head of India at the Oxford Economics Institute. “This is a soft patch…[but]I am very optimistic about 2022. “


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