Context

A welter of data collectively and individually point to one worrying conclusion: economic momentum across sectors is slowing in the widening absence of that key ingredient, demand.

Slowdown across the economy

The decline in the automobile sector –

• Domestic sales of cars, commercial vehicles and two wheelers all contracted in April, from a year earlier, the Society of Indian Automobile Manufacturers (SIAM) has reported.

• The decline of almost 16% in total automobile industry sales is an indication that consumption demand across markets — urban and rural, institutional and individual — is petering out.

• While sales of commercial vehicles, a fair proxy for overall economic activity, slid 6% last month, a 16.4% drop in demand for two-wheelers extended the segment’s slump into the new financial year, mirroring the rippling rural distress.

• The data on passenger vehicles, which saw the steepest drop in almost eight years, add to the gloom.

• Car sales shrank almost 20% amid a protracted slump that shows no signs of a reversal.

Output decline in various sector

The latest industrial output figures from the government serve to underscore the widespread nature of the demand drought.

The decline in IIP – The Index of Industrial Production (IIP) for March shows output fell 0.1% from a year earlier to a 21-month low, with the use-based classification revealing a weakening that spared none of the six segments.

Shrink in capital Goods sector – The capital goods sector shrank by 8.7% on the back of an 8.9% contraction in the preceding month.

Fall in consumer durables – Output of consumer durables fell 5.1% from a year earlier, and growth in consumer non-durables production slid to 0.3% from the 14.1% pace in March 2018.

Drag in manufacturing – Manufacturing, which has a weight of almost 78% in the index, continues to be the biggest drag, with output contracting by 0.4% after shrinking by a similar extent in February.

Overall, the sector’s growth slowed to 3.5% in the last fiscal, from 4.6% in 2017-18.

Conclusion by data

• Overly optimistic GDP growth Rate – The composite picture that emerges from all these numbers belies the CSO’s implicit fourth-quarter GDP growth assumption of 6.5%, and paints it as overly optimistic.

• Unstable global conditions – With global headwinds strengthening in the backdrop ofan escalating trade war between the two largest economies, the U.S. and China, and rising tensions in West Asia beginning to push up energy costs from the top oil-exporting region, Indian policymakers have to contend with an external sector that would likely only add to the domestic pressures, most certainly in the near term if not in the longer.

• Need for a normal monsoon – The distress in the farm sector may just ease marginally if the monsoon does turn out to be “near normal” as forecast last month, and could help spur a demand revival in the rural hinterland.

Conclusion

Still, the new government that emerges after May 23 must spare little time in drawing up appropriate policy measures that not only help reinvigorate demand but also ensure that such a revival is robust, across-the-board and enduring.