India’s growth shows signs of fatigue as momentum shifts from top to bottom

Published 16/07/2025, 19:32
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Investing.com -- India’s post-pandemic growth rebound appears to be losing steam, with economic momentum entering a more moderate phase as high-frequency indicators point to a softening at the top of the income pyramid.

While headline numbers have held up, signs of strain are becoming evident beneath the surface. Industrial production hit a nine-month low in May, power demand and vehicle sales have cooled, and credit growth is moderating.

Air traffic, a proxy for higher-end consumption, is also decelerating. But activity at the base of the pyramid, which had been long muted is now showing signs of revival.

“The lower part of the pyramid is gradually growing, while the top, having been the flag-bearer of growth since COVID, has lost some momentum,” Bernstein said.

Tractor sales have picked up, two-wheeler retail is outpacing four-wheelers, and rural indicators have strengthened following strong monsoon onset.

Meanwhile, real estate sales in top-tier cities have slumped to an eight-quarter low.

The brokerage argued that the divergence should not be viewed as a temporary anomaly but rather as a structural shift in the distribution of growth.

"It’s better to see it as a phase where the existing gap is gradually being bridged," the note said.

Bernstein expects India’s growth to stabilise around 6.5%, cautioning against expectations of a return to sustained 8%+ expansion without stronger catalysts.

Despite some resilience in sectors like steel, coal and cement, the broad trend suggests moderation rather than acceleration.

One bright spot is capital expenditure. Government capex surged 54% year-on-year in April-May, albeit off a low base.

Private capex is growing at 10%, slightly below recent trends, though improving liquidity and favourable external signals, including clarity on U.S. tariffs and consumer recovery, could offer further support.

“While not expected to be spectacular year, capex can’t be worse than the previous year,” Bernstein said, signalling tempered optimism in an otherwise cautious outlook.

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