India's Economic Activity Cools Down In January Amid Slowdown Fears, Exports Sinks 6.58 Per Cent

Falling exports and a slack in manufacturing and services drove the weakness in business activity, offsetting improvement in consumption drivers reflected by tax collections and job growth

Economic activity in India cooled off at the start of the year as higher borrowing costs tempered demand at home and abroad, signalling more pain ahead as the global economy slumps, reported by news agency Reuters.

Falling exports and a slack in manufacturing and services drove the weakness in business activity, offsetting improvement in consumption drivers reflected by tax collections and job growth, according to eight high-frequency indicators tracked by Bloomberg.

Domestic recovery, that has been driving momentum so far, is getting wobbly. The Reserve Bank of India, which has raised borrowing costs six times since May to 6.50 per cent, is seen increasing interest rates again in its April review amid inflation topping estimates and further tightening by global central banks.

Purchasing managers’ surveys indicated activity in both manufacturing and services slacked in January. Output and new orders grew at softer paces, and dragged the composite index lower from an 11-year high in December.

“Although manufacturers received new orders from international markets, the increase was slight at best and moderated considerably to a ten-month low,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

Exports fell 6.58 per cent in January from a year ago to $32.9 billion, data released by the Trade Ministry showed, and indicating lower demand for goods abroad. Imports dropped 3.63 per cent from a year earlier and that pushed the trade gap to the lowest in a year, fuelling hopes of a significantly narrower current account deficit.

The sharp fall in imports reflects the moderation in discretionary demand in the goods sector and the decline in commodity prices, said Garima Kapoor, economist at Elara Capital.

Liquidity in the banking system tightened, but credit growth picked up again, rising 16.33 per cent in January, from 14.87 per cent in December, Reserve Bank of India data show.

The goods and services tax collections, which help measure consumption in the economy, rose 10.5 per cent from a year earlier to Rs 1.56 lakh rupees ($18.9 billion) — a feat achieved only once before in the history of the levy introduced in 2017. New vehicle registrations surged 14 per cent in the month, with passenger vehicle sales growing 22 per cent year-on-year, according to data from the Federation of Automobile Dealers Associations.

Electricity consumption, a widely used proxy to gauge demand in the industrial and manufacturing sectors, held steady, with the peak requirement last month rising to 173 gigawatt from 171 gigawatt in December due to increased heating requirements. India’s unemployment rate dropped to 7.14 per cent, from a 16-month high of 8.30 per cent a month ago, according to data from the Centre for Monitoring Indian Economy Pvt.