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India’s investment upturn is being led by private real estate outlays rather than public capex, while consumption growth, which has been weak, may be revised upwards in the forthcoming official GDP numbers, HSBC’s research unit observed in a report on Wednesday, questioning the “dominant narrative” about the economy’s growth drivers.
While conceding that consumption growth is not equitable, with “top-of-the-pyramid” household spends rising faster than for those at the bottom of the pyramid, HSBC Global Research’s chief economist for India and Indonesia Pranjul Bhandari, asserted there were several reasons to believe consumption growth was not as slow as the national income estimates suggested.
“Consumer goods imports, personal services, and non-housing personal loans have been rising quickly. We believe the private consumption data will be revised up in subsequent GDP revisions,” she wrote in the report. However, even consumer staples were weak and a broad revival in private investments remained elusive, the international lender’s research arm indicated.
Stressing that the narrative of robust GDP being driven by public investment and early signs that private sector was opting to invest rather than consume, did not pass ‘the smell test’, Ms. Bhandari said higher consumption needed to kick in to spur confidence to invest. “In French revolution parlance, is it true that the Indian economy is eating cake while not being able to afford bread,” she asked rhetorically.
Despite the government ramping up capex, public sector firms were cutting back investments, leaving the overall public investment ratio below pre-pandemic levels, she said. “Instead, it is private investment that has risen, led by ‘dwellings and structures’. This chimes well with the rise in house sales and housing loan growth,” Ms. Bhandari pointed out.
However, an important component of investment — machinery and equipment — remained weak, so it would be “premature” to call it a “start of a new investment cycle”, she reckoned.
