Mercedes Benz in top gear in India, IMF lowers growth forecast and rural demand rebounds

The Federal brings you the key economic events that is creating a buzz in the world of business in India on Wednesday (April 12).

Mercedes-Benz achieves its highest-ever sales in India

Mercedes-Benz seems to be in top gear as the luxury and commercial automotive brand registered its highest-ever sales in the country, with 16,497 units sold during 2022-23. The vehicles priced above ₹1.5 crore accounts for a fifth of the total. The German company sold roughly 37 per cent more passenger automobiles than it did in 2021-22.

What it implies: Luxury car makers are witnessing considerable sales in India, with Lamborghini having sold out for a year, primarily because of higher earning power among the 25-35 age group. According to Euromonitor International, India’s luxury goods industry expanded 42 per cent in 2022 to $8.5 billion, up from $6 billion in 2021.

Following the pandemic, India has seen a near-revenge-like increase in luxury living expenses. The luxury goods sector has made a comeback in the last two years, with high-priced vacations, large fat weddings, and excellent dining experiences, to name a few examples.

The number of ultra-high-net-worth persons (those with net assets of $30 million or more) is predicted to climb 39 per cent between 2021 and 2026, with 19,006 people expected to have net assets of $30 million or more by 2026, according to property consultancy Knight Frank. Over the next five years, the number of persons with wealth surpassing $1 million is expected to rise by 77 per cent.

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The IMF has reduced India’s FY24 growth forecast to 5.9 per cent

The International Monetary Fund has downgraded India’s GDP growth forecast to 5.9 per cent from 6.1 per cent last fiscal year, saying that growth prospects in the medium term now appear bleaker than in decades. It also reduced the global GDP forecast to 2.8 per cent from 2.9 per cent due to tightening financial conditions and the protracted Russia-Ukraine conflict.

It also cut India’s next fiscal growth prediction by 50 basis points to 6.3 per cent. China’s growth estimates, on the other hand, remain unchanged, with the world’s second-largest economy predicted to rise 5.2 per cent in 2023 and 4.5 per cent in 2024.

What it implies: The IMF’s lower growth prediction is comparable to the forecasts made by World Bank and Asian Development Bank for India in FY24, which are 6.3 per cent and 6.4 per cent, respectively. According to the IMF, emerging markets and developing economies will contribute 80 per cent of global growth over the next two years, with India contributing more than 15 per cent.

While the IMF recognises India’s economy as a bright spot, most of the development is service-led due to the IT/ITeS sector expansion without a corresponding scenario in the manufacturing sector. From 2017 to 2022, the services sector’s share of India’s GDP increased from 45 per cent to 55 per cent, while the manufacturing sector’s contribution ranged from 17 per cent to 22 per cent.

This is ascribed to the country’s industrial policy, which focuses more on capital-intensive sectors. As a result, the manufacturing industry, considered the backbone of any economy, contracted by 1.1 per cent in the October-December 2022 quarter. While the current IMF growth prediction for India is due mainly to the global financial outlook, India will need to address laggards, such as the manufacturing sector and a growing trade imbalance, sooner rather than later to achieve well-rounded growth.

On monsoon forecast, IMD differs from Skymet

Contrary to Skymet’s predictions, the Indian Meteorological Department (IMD) has forecast a typical monsoon, with rainfall projected to be 96 per cent of the long-term average over the June-September season.

What it implies: IMD and Skymet projections on monsoons have traditionally disagreed, with one claiming to be more accurate than the other. Despite technological advances, observers say the IMD has consistently failed to provide reliable monsoon forecasts. One of the reasons for varied outcomes could be the different forecasting models of the weather forecasting entities.

The IMD uses a statistical model to forecast rainfall, whereas Skymet uses a dynamic model. The statistical model considers constant quantities recorded over time, such as wind, temperature, humidity, etc. The dynamic model is based on atmospheric equations, the values of which vary depending on the weather. IMD does want to transition to a dynamic forecasting model, although this is yet to occur.

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Rural demand is expected to rebound: industry experts

According to the Centrum Research’s analysis on Rural India and the Demand Outlook, industry insiders predict that macroeconomic headwinds (factors that hinder growth) would abate as food and commodities prices fall. Moreover, due to improved monsoon forecast accuracy, they foresee a demand rebound commencing in Q1FY24 (as well as enhanced irrigation systems).

Rural India has been witnessing a sluggish but steady economic revival. Rural India has recently been facing a chaotic demand decline due to factors such as COVID-19, spiralling food and fuel costs, lack of agricultural equipment, and irregular monsoons. As a result, the consumer momentum in many rural areas, particularly in Central India, has shifted.

However, given the slowing of food inflation and commodity prices, industry experts expect these macroeconomic headwinds will fade. As a result, commencing Q1FY24, with a strong monsoon forecast (along with enhanced irrigation systems) and an improving economy should result in demand recovery.

Even though considerable inflationary pressure forced enterprises to raise product prices, the rural consumer saw a significant influence on the share of their wallet allocated to staples and discretionary products. Demand across consumption categories, on the other hand, was predominantly driven by “essential things” and “necessity,” as reported by Tractor and 2Wheeler merchants. Consumer demand in retail remained weak, particularly in the clothes and footwear segments, due to high food inflation and GST rate hikes.