Indian Economy Heading Towards A Slowdown? HSBC’s Pranjul Bhandari Offers Insight

Amid mounting concerns of a potential economic slowdown, Pranjul Bhandari, chief India and Indonesia economist at HSBC, offered a more nuanced view, suggesting that while certain sectors are indeed experiencing a slowdown, the overall economy continues to exhibit resilience.

According to Bhandari, "55% of our indicators across sectors continue to grow at a positive clip", indicating that the majority of the economy is maintaining its upward trajectory.

However, Bhandari also acknowledged that certain segments of the economy, especially consumption and consumer goods manufacturing, are facing challenges.

One of the most notable concerns is the slowdown in consumption—a crucial driver of India’s economic growth. Bhandari pointed out that both rural and urban India are grappling with slowing consumption, but the downturn is "sharper in urban areas". Urban consumption, in particular, is facing greater headwinds, which could be attributed to a combination of factors such as reduced discretionary spending, higher inflation, and slower wage growth, Bhandari noted.

On a more positive note, Bhandari highlighted that industrial goods manufacturing remains robust, suggesting that production of capital goods and infrastructure-related items is still thriving. This is a key support for the overall economy, especially as the manufacturing sector plays a crucial role in driving GDP growth.

However, consumer goods manufacturing—which has traditionally been a major contributor to India's industrial output—has shown signs of slowing down. The softer growth in this sector reflects the weakening demand in both urban and rural markets for everyday products.

Another bright spot in Bhandari's analysis is agriculture, which is performing better than expected. The agriculture sector has seen an uptick, supported by favorable monsoon conditions and improving farm productivity. Bhandari is optimistic that if this trend continues, rural consumption could see a revival in the coming years.

"With agriculture doing better, rural income is likely to improve, which should boost consumption in the rural areas in the next couple of months," she stated. Government spending in agriculture, infrastructure, and rural development could further support this growth, helping to stabilise the rural economy and potentially reverse the slowdown in consumption.

Another key factor supporting India's economy is the increase in government expenditure. According to Bhandari, state expenditure is expected to rise in the coming months, especially as the country moves beyond the election period.

"Government spending has picked up, and we are seeing a recovery expenditure", which will continue to rise in the next few months, providing much-needed stimulus to the economy, Bhandari said.