Due to strong domestic demand, India’s economic activity grew again in May, reassuring policymakers that rates may be raised for longer even if the current largest risks are heat waves and below-average rains.
The South Asian nation is expanding more quickly than the majority of the world’s major economies thanks to strong demand and moderated raw material costs. The Reserve Bank of India will have more leeway to maintain higher borrowing charges until inflation is well under control. The central bank, which kept its key interest rate unchanged this month, projects that the economy would expand by 6.5% this fiscal year, while expert forecasts anticipate weaker growth due to the unpredictability of the monsoon.
A record expansion in input stocks helped manufacturing activity reach a 31-month high in May. Despite the fact that services activity decreased from a near 13-year high in April, it was still faster than any other month and helped to keep the composite index at a high level for a second consecutive month. Before the monetary authority began cleaning up for better rate transmission, the RBI’s decision to remove the 2,000-rupee notes from circulation helped increase liquidity in the banking sector. Due to a reduction in corporate borrowing, the growth of bank credit as a whole decreased to 15.42% from 15.90% a month earlier.
When compared to a year ago, the amount of goods and services tax collected decreased from a record 1.87 trillion rupees ($22.6 billion) in April to 1.57 trillion rupees in May.
According to figures from the Federation of Automobile Dealers Associations, demand was still strong in other areas, with retail vehicle sales rising 10% in May after falling 1.4% the month before.
As more people left the labour field, India’s jobless rate decreased to a three-month low of 7.70% from 8.50% in April. Increased sales also allowed businesses to hire more people.