Cash crunch, trade wars hit home in India

Economic growth may moderate in the coming months, suggest highfrequency indicators

India is beginning to feel the heat of global trade tensions and tighter monetary conditions at home, as rising oil prices and waning consumption threaten to muzzle animal spirits in the world’s fastestgrowing major economy.

Demand for services and manufactured goods slowed in August, while a cross-section of high-frequency indicators suggest economic growth may moderate in the coming months from an 8 per centplus pace in the quarter to June.

A debt crisis at a local lender and a cash crunch in the banking system add to the risks to the economy that’s dealing with costlier oil and a weaker rupee. Here are the full details of the dashboard: China’s manufacturing sector likely resumed its slowdown in September after taking a pause in August, with exporters facing growing strains from increasingly hostile trade ties with the United States.

The official manufacturing Purchasing Managers’ Index (PMI) is expected to have slipped to 51.2 in September from 51.3 in August, according to the median forecast of 23 economists in a poll yesterday. The 50-mark divides expansion from contraction.

As US tariffs threaten to put more pressure on China’s already slowing economy, policymakers in recent months have sought to boost lending to businesses, cut taxes and fast-track big infrastructure projects. Profit growth at China’s industrial firms slowed to a five-month low in August, data showed on Thursday.

■ Business activity: India’s main services index expanded in August at the slowest pace in three months as both new orders as well as hiring slowed. The Nikkei India Composite PMI Output Index retreated from July’s near two-year high, mirroring weaker growth in both the manufacturing and services gauges.

The services sector accounts for about 55 per cent of India’s gross domestic product.

More worryingly for the Reserve Bank of India, input cost inflation rose to its highest in nine months, though output prices remained more or less stable.

The central bank’s monetary policy committee meets next week to decide on interest rates, after delivering two hikes since June. The swap markets are pricing in at least 100 basis points of rate increases in the coming months, which will take the repurchase rate to 7.5 per cent.

■ Exports: India’s merchandise exports grew by a relatively strong 19.2 per cent in August from a year earlier. Sectors such as textiles, pharmaceutical and engineering goods are witnessing some benefit from a weak currency, although imports — especially costly crude — are handily outpacing shipments abroad.

That could see trade become an overall drag on growth.

■ Consumer activity: Data from the Society of Indian Automobile Manufacturers show that local car sales fell in August as rising cost of loans and a sharp rise in domestic fuel prices likely put off buyers. That apart, devastating floods in the southern state of Kerala just before a key festival hit purchases.

■ Economic activity: Foreign direct investment rose slightly in July. Concerns if Prime Minister Narendra Modi will win again in the 2019 general election is likely to keep investors on the sidelines.