Economic Divergence To Persist Until May Elections

BMI View: Economic performance in India remains mixed, with the purchasing managers' index (PMI) for the manufacturing sector recording further expansion in January, while the services sector remained in contraction. This is being driven by the diverging outlooks between consumers and the corporate sector, and will likely persist until the elections in May. Indeed, we believe that businesses will remain cautious due to the lack of policy clarity, while the outlook for consumers is likely to remain positive as political parties implement populist policies.

January readings of the purchasing managers' index (PMI) for the Indian manufacturing and services sectors (from HSBC-Markit) suggest that economic performance remains mixed and we expect this lacklustre performance to persist until at least after the elections in May. Indeed, while the manufacturing sector marked another month of expansion, with its PMI coming in at 51.4 in January compared to 50.7 in December, the services sector recorded its seventh month of contraction. This mixed performance reflects the ongoing divergence within the economy as businesses, on the one hand, are withholding investment due to economic and political uncertainty. On the other hand, consumer spending has been spurred on by generous pre-election hand outs and populist policies by parties vying for political support.

Wary Businesses Unwilling To Spend…

Unimpressive Performance
India - Manufacturing & Services Purchasing Managers' Index

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Related sectors of this article: Economy, Economic Activity
Geography: India

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