RBI Sees Resilient Demand, Warns Of Emerging Supply-Side Stress

Demand remains resilient, but momentum uneven The RBI noted that high-frequency indicators for March showed divergent trends. Consumption remained relatively strong, supported by robust GST collections, rising e-way bill generation and steady fuel demand, The Hindu reported. Automobile sales and vehicle registrations continued to perform well, aided by earlier tax relief measures and strong rural demand. Digital payments also recorded healthy growth in both volume and value. “The rural economy played an important role in sustaining demand resilience,” the report said, adding that rising adoption of electric vehicles, especially in the two-wheeler segment, contributed to momentum. Early signs of slowdown emerge Despite the resilience, some indicators pointed to a slowdown. The manufacturing Purchasing Managers’ Index (PMI), though still in expansion territory, fell to its lowest level in nearly four years, reflecting weaker growth in new orders and output. The services PMI also eased to a 14-month low, indicating moderation in business activity and softer new business inflows. Other areas showing deceleration included port cargo movement, air passenger traffic, and purchasing managers’ outlook. The index of eight core industries dropped to a 19-month low, led by reduced output in fertilisers, crude oil, coal and electricity. Supply pressures and cost concerns The RBI highlighted rising input costs due to higher fuel, gas and raw material prices, which have begun to weigh on business sentiment. It also noted moderation in petroleum consumption, partly due to a decline in aviation turbine fuel demand amid flight disruptions. Electricity demand remained moderate, influenced by above-normal rainfall reducing cooling needs during March. Risk of supply shock turning into demand shock The central bank cautioned that prolonged supply disruptions could eventually impact demand. “Possible second-round effects with the supply shock transforming itself into a demand shock warrant close monitoring,” the report said. Resilience backed by strong fundamentals Despite the challenges, the RBI maintained that the Indian economy continues to hold firm, supported by strong macroeconomic fundamentals. It added that easing geopolitical tensions, including a ceasefire between the United States and Iran, could provide relief to global supply chains and energy markets. Overall, the report underscores a cautiously optimistic outlook, with India’s economic resilience intact, even as global uncertainties and cost pressures pose near-term risks. (KNN Bureau)