A surge in festive spending has raised hopes that India will regain its title as the world’s fastest growing major economy, despite analysts warning of major challenges facing a country whose consumers and businesses are still affected by the coronavirus pandemic are affected.
Sales of Diwali, the Hindu festival of lights celebrated last week, rose to a record 1.25 trillion rupees ($ 16.8 billion), a 75 percent increase from last year and well above the usual, according to Nomura 20 percent year-on-year – annual growth.
The rise underscores how strong economic activity has rebounded and adds to the bullish sentiment. This is partly due to a sharp drop in daily Covid-19 cases to around 11,000, from 400,000 in May when a brutal wave of infections overwhelmed healthcare systems.
Other indicators such as mobility and electricity demand have also recovered. However, economists disagree on how sustainable the recovery is, as rising prices depress consumers and coal shortages threaten to affect industrial production.
“The falls are down. . . and because Diwali was quite subdued last year, everyone was out this time, ”said Shumita Deveshwar, Senior Director of India Research at TS Lombard. “This is a short-term boost. I don’t know if it will be a long-term recovery. “
The IMF expects India’s gross domestic product to grow 9.5 percent for the year ending March, compared to 8 percent in China and more than any other major economy. However, that reflects a correction after shrinking 7.3 percent last year and is unlikely to change the size of the economy from two years ago.
India is due to release its latest inflation and industrial production data on Friday, which is expected to highlight some of the challenges the recovering economy is still facing.
Industrial production growth has slowed since the summer, exacerbated by factors such as sharp cuts in automobile production due to global semiconductor shortages. The recent shortage of coal, India’s main source of electricity, has led the government to divert fuels from industries such as steel mills to the power grid.
Analysts said the power shortage threatened the production of metals and other nuclear materials. “That would obviously have a spillover effect on other industries,” said Aurodeep Nandi, an economist at Nomura. “I don’t think we’ve reached a stage where all of this is still reflected in data.”
Retail inflation, meanwhile, has fallen from over 6 percent in June to 4.3 percent in September. But continued price hikes have hurt consumers, prompting the government to cut taxes on gasoline and diesel this month.
“We’re seeing indicators that paint a mixed picture,” added Nandi. “That is the challenge of understanding what is currently h -pening with growth.”
Oxford Economics, a research group, said further progress in vaccinating the Indian population was needed to support the recovery.
India has given Covid-19 vaccination to more than half of its population, with a quarter fully vaccinated. Oxford expects 70 percent of Indians to be fully vaccinated by the first quarter of next year.
“There seems to be some loss of momentum in growth,” said Priyanka Kishore, head of India for Oxford Economics. “It’s a soft spot. . .[but]I’m pretty optimistic for 2022. “