After robust January-March quarter growth, high-frequency data suggests weaker April; all eyes on rural consumption
Data released last week showed growth in factory output, as measured by the Index of Industrial Production (IIP), edged down to an eight-month low of 2.7 per cent in April 2025. Before that, the uncertainty caused by the US' reciprocal tariffs before their quick 90-day suspension saw the merchandise trade deficit widen to a five-month high of $26.42 billion in the first month of the current fiscal.
Meanwhile, the HSBC India Purchasing Managers' Index (PMI) slipped to a three-month low of 57.6 last month from 58.2 in April 2025, which was little-changed from 58.1 in March. Banks' non-food credit growth cooled to 10.2 per cent year-on-year as on April 18 from 19 per cent a year ago and 11 per cent as on March 22, 2025.
Is Indian economy witnessing cyclical moderation?
According to data tracked by Nirmal Bang Institutional Equities, early data for April 2025 shows 75 per cent of indicators were in positive territory on a year-on-year basis compared with 80 per cent in March 2025. When seen month-on-month, the proportion of indicators that were up in April declined to 40 per cent from 82 per cent in March. 'Our proprietary output index is indicating continued cyclical moderation in April 2025; the rebound in March has failed to sustain,' Teresa John, deputy head of research and economist at Nirmal Bang, said in a note.
HSBC too sees April as being 'a shade weaker', with 64 per cent of the indicators its economists track growing in April 2025 as per early data, slightly down from 66 per cent in January-March 2025. Further, Nomura's India Composite Leading Index has been below 100 since the last quarter of 2024, pointing towards below-trend growth.
Rural growth to the rescue
The 7.4 per cent growth print for the final quarter of the last fiscal has, admittedly, pushed most experts to review their projections for the current year. On Tuesday, UBS Securities raised its growth forecast for FY26 by 40 basis points (bps) to 6.4 per cent. Its India Composite Economic Indicator, a lead indicator of activity was up 1.1 per cent month-on-month in April 2025. While this was slightly down from the average 1.2 per cent growth seen in the quarter ended March, the marginal decline suggested 'economic momentum held up in April despite the trade war'.
The key to ensure growth in FY26 does not drop too far from 6.5 per cent last year could be the rural economy, which is expected to get a leg-up from the good monsoon and lower inflation, and especially food inflation. While agricultural sector growth slowed in January-March 2025 to 5.4 per cent, it has now posted three consecutive quarters of 4 per cent-plus expansion.
Tractor sales data has been encouraging as well, with the first four months of 2025 seeing 14.3 per cent higher domestic sales according to the Tractor and Mechanization Association. Leading manufacturer Mahindra & Mahindra reported a 10.4 per cent year-on-year growth in domestic tractor sales in May 2025, according to data released on Sunday.
RBI expected to continue monetary easing
With growth this fiscal widely seen below 6.5 per cent, the Reserve Bank of India's Monetary Policy Committee (MPC) is expected to reduce the policy repo rate on Friday to 5.75 per cent, aided by benign inflation. The central bank expects the Consumer Price Index of inflation to average 4 per cent in FY26, in line with its medium-term target, providing it room to keep cutting rates and to spur economic activity. Nomura economists Sonal Varma and Aurodeep Nandi, who see retail inflation averaging 3.3 per cent in FY26, expect the MPC to lower the repo rate by another 100 bps to 5 per cent by the end of December 2025.
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