The Indian economic system seemingly had a sluggish begin to 2025-26, with numerous high-frequency indicators suggesting exercise ranges weakened after the GDP grew by a faster-than-anticipated 7.4 per cent within the last quarter of FY25.
Knowledge launched final week confirmed development in manufacturing unit output, as measured by the Index of Industrial Manufacturing (IIP), edged right down to an eight-month low of two.7 per cent in April 2025. Earlier than that, the uncertainty attributable to the US’ reciprocal tariffs earlier than their fast 90-day suspension noticed the merchandise commerce deficit widen to a five-month excessive of $26.42 billion within the first month of the present fiscal.
In the meantime, the HSBC India Buying Managers’ Index (PMI) slipped to a three-month low of 57.6 final month from 58.2 in April 2025, which was little-changed from 58.1 in March. Banks’ non-food credit score development cooled to 10.2 per cent year-on-year as on April 18 from 19 per cent a yr in the past and 11 per cent as on March 22, 2025.
Is Indian economic system witnessing cyclical moderation?
In response to knowledge tracked by Nirmal Bang Institutional Equities, early knowledge for April 2025 exhibits 75 per cent of indicators have been in optimistic territory on a year-on-year foundation in contrast with 80 per cent in March 2025. When seen month-on-month, the proportion of indicators that have been up in April declined to 40 per cent from 82 per cent in March. “Our proprietary output index is indicating continued cyclical moderation in April 2025; the rebound in March has didn’t maintain,” Teresa John, deputy head of analysis and economist at Nirmal Bang, stated in a notice.
HSBC too sees April as being “a shade weaker”, with 64 per cent of the symptoms its economists monitor rising in April 2025 as per early knowledge, barely down from 66 per cent in January-March 2025. Additional, Nomura’s India Composite Main Index has been beneath 100 for the reason that final quarter of 2024, pointing in direction of below-trend development.
Rural development to the rescue
The 7.4 per cent development print for the ultimate quarter of the final fiscal has, admittedly, pushed most consultants to assessment their projections for the present yr. On Tuesday, UBS Securities raised its development forecast for FY26 by 40 foundation factors (bps) to six.4 per cent. Its India Composite Financial Indicator, a lead indicator of exercise was up 1.1 per cent month-on-month in April 2025. Whereas this was barely down from the typical 1.2 per cent development seen within the quarter ended March, the marginal decline urged “financial momentum held up in April regardless of the commerce warfare”.
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The important thing to make sure development in FY26 doesn’t drop too removed from 6.5 per cent final yr may very well be the agricultural economic system, which is anticipated to get a leg-up from the great monsoon and decrease inflation, and particularly meals inflation. Whereas agricultural sector development slowed in January-March 2025 to five.4 per cent, it has now posted three consecutive quarters of 4 per cent-plus growth.
Tractor gross sales knowledge has been encouraging as effectively, with the primary 4 months of 2025 seeing 14.3 per cent larger home gross sales in line with the Tractor and Mechanization Affiliation. Main producer Mahindra & Mahindra reported a ten.4 per cent year-on-year development in home tractor gross sales in Could 2025, in line with knowledge launched on Sunday.
RBI anticipated to proceed financial easing
With development this fiscal broadly seen beneath 6.5 per cent, the Reserve Financial institution of India’s Financial Coverage Committee (MPC) is anticipated to scale back the coverage repo fee on Friday to five.75 per cent, aided by benign inflation. The central financial institution expects the Shopper Worth Index of inflation to common 4 per cent in FY26, in keeping with its medium-term goal, offering it room to maintain slicing charges and to spur financial exercise. Nomura economists Sonal Varma and Aurodeep Nandi, who see retail inflation averaging 3.3 per cent in FY26, count on the MPC to decrease the repo fee by one other 100 bps to five per cent by the tip of December 2025.
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