India’s Economy Shows Visible Signs of Slowdown

India’s economic momentum is showing signs of moderation, despite euphoric market sentiment.

India is entering a “transitionary” period between two waves of post-pandemic growth, with visible slowdowns across multiple sectors, Bernstein analysts said Thursday.

The report points to declining trends in premium two-wheelers, passenger vehicles, and overall retail sales.

Hotel rental growth has fallen below 4% this fiscal year, while real estate inventories are building and new launches flattening.

Gold jewellery demand contracted by 17% in Q2 2024, and broader retail demand has weakened.

Industrial indicators are also softening, with the Index of Industrial Production and eight core industries showing deceleration. The latter contracted in August for the first time since June 2021.

Electricity demand has weakened, and fuel consumption has declined in recent data. Bernstein attributes the slowdown partly to a normalization after the post-COVID consumption surge, particularly among top-tier households.

The analysts note that while rural health is slowly improving and the government may increase subsidies for the urban middle class, the economy now needs the mid-segment to take over the consumption baton to fuel the next wave of growth.

The report suggests that private capital expenditure may recover, driven by opportunities in the power sector and capacity expansion as supply-demand dynamics tighten. However, lower return on equity prospects and tougher access to credit for less viable projects could limit the extent of capex growth.