India's Consumption and Investment Activity: A Mixed Bag, Says Goldman Sachs

A report by Goldman Sachs unveils a tale of two Indias, with consumption showing resilience in both urban and rural sectors, while investment activities remain erratic. The report, leveraging high-frequency economic data, highlights an uptick in urban consumption during July, spurred by an increase in passenger vehicle sales and petrol demand. Additionally, gross GST collections saw an improvement following a dip in July, albeit with a modest year-on-year growth of 7.5 percent. Notably, air passenger traffic rebounded sharply in August's first half, partially due to Independence Day holiday travel.

Rural indicators also pointed to a brighter picture, with tractor registrations and agricultural exports posting impressive year-on-year increases of approximately 14 percent and 13 percent, respectively. Further boosting rural fortunes, real agricultural wage growth reached 4.5 percent in May—the highest level in eight years. According to Goldman Sachs, factors such as a strong winter crop harvest, controlled food inflation, and greater welfare spending are expected to further bolster rural consumption in the forthcoming months.

Nevertheless, the report cautions of potential weather-related headwinds, highlighting a surge in vegetable prices during July linked to rising temperatures in various regions. Unlike consumption's traction, the investment sector presents a variegated scene. While monsoon disruptions led to a significant drop in coal production in July, automobile and steel outputs rose, with steel production recording a solid 11 percent year-on-year increase. Despite this, transportation data showed disparities, with rising diesel demand failing to reflect in port cargo movements. Goldman Sachs' proprietary investment index pointed to a slight deceleration, tracking a 6.7 percent growth in the third quarter of CY25, compared to 7.7 percent in the previous quarter. The report encapsulates the prevailing narrative: household and rural expenditures preserve growth momentum, yet investment activities face challenges specific to seasons and sectors.

(With inputs from agencies.)