“There is some incipient pressure evident on the domestic economy. Basis our analysis of 50 meaningful leading indicators (both consumption as also demand centric), a dip looks plausible across select cohorts of agri, industry and services in Q2,” the SBI economists said.
It said aggregate demand continued to grow albeit with a slower momentum than in the preceding quarters and painting a somewhat mixed picture.
Stating that it tracks 50 indicators to gauge economic activity, the note said the proportion of indicators showing acceleration declined to 69 per cent in Q2FY25, as against 80 per cent in Q2FY24, and 78 per cent in Q1FY25.
It, however, was quick to add that this is a “temporary impasse” and the “narrative might change completely” from the ongoing December quarter onwards. However, they said Q2 with a 6.5 per cent growth would be a blip and an impasse when it comes to growth, and added that tailwinds of recovery are now reinvigorated by a surge in rural demand. Domestic tractor sales showed a jump in growth in October, while domestic 2-wheeler and 3-wheeler sales are showing consistency in growth, it said, adding that rural agri wage growth also accelerated in August this year.
Addressing concerns on urban demand, it explained that the same can be indicative of shifting contours of urban demographics and marked preferences to quick commerce, which is not being mapped properly.
The regulatory tightening on unsecured lending and roadblocks hindering roll over/refinancing of debt through unsecured credit is punctuating the unwarranted exuberance built up post pandemic, more in urban ecosystem, it added.
The SBI economists pitched for avoidance of policy mistakes of the past like farm loan waivers which end up distorting credit culture or having minimum support prices-driven agricultural growth which is “fiscally extravagant and results in extreme ground water depletion”.