Investing into the slowdown: Industry optimism defies weak signals

The Reserve Bank of India cut its growth forecast in its latest policy meeting, but in some ways Indian industry seems remarkably optimistic.

 

The value of new manufacturing capacity added in the last 12 months is the highest in at least 14 years, shows a Business Standard analysis of Centre for Monitoring Indian Economy (CMIE) data for completed projects. The capacity additions have come in sectors like chemicals, which has seen both domestic and global tailwinds, as well as transport equipment (automobile and ancillary) industry (Charts 1, 2).

 

  

Besides the momentum on completed projects, new project announcements touched an all-time high in March 2024, though much of these were driven by agreements during investment summits where intent might be preliminary. This comes even as nearly a quarter of existing capacity remains unutilised (Chart 3).

 

 

Indicators of action on the ground, such as the CII-Economic Activity Index, trended lower in December even before the turmoil caused by Trump’s tariffs. But the CII-Business Confidence Index (BCI) inched up, in line with the trend seen in the NCAER-NSE Business Confidence Index. Much of the gains may be driven by hope. The CII index, for example, averages responses based on the current situation and expectations of the future. Much of the rise in September was driven by expectations of better days ahead (Chart 4, 5).

 

 

 

The indices reflect data from the second and third quarter of 2024-25 (FY25). Some of the more recent high-frequency indicators, such as passenger car sales and consumption of petroleum products, still show signs of weakness (Chart 6).