Consumption, thoda growth lift kara do

With real GDP slipping and sliding to 5.4% for Q2 2024-25, curtains of the latest growth data don't seem to match the carpet of the market mood. Slowing growth and stubborn food inflation have made the job of lowering interest rates more complicated. RBI may not have enough justification to cut rates a week after GDP growth dipped to a 7-qr low. But the central bank will have adequate reason to revise its full-year economic growth projection on urban households squeezing non-essential expenditure to pay for costly food. Some moderation was expected after a surge in consumption last year, and it could have bottomed out in the July-Sept quarter. On its part, food inflation may have peaked. RBI will need a couple of more monthly inflation prints and a clearer take on festival spending before it can move on interest rates.

The economy is cooling faster than anticipated, and industry is bearing the brunt. This is likely to delay the revival in private investment as companies await a resumption in consumer spending. Backloaded government capex may prop up growth over the rest of the year. But crowding in of private investment will be pushed back on account of tepid consumption. Likelihood of increased protectionism clouds the picture for exports. Both monetary and fiscal policy are in for a pivot with increasing apparent vulnerability of India's class-leading economic growth.

Markets are likely to feel the chill as corporate performance weakens in a high-interest rate environment. India's fancy valuation among EMs will be reviewed by financial markets as it heads into heightened trade belligerence. The economy has been an island of calm in a turbulent world. That comfort may fall short if domestic consumption falters.