Indian consumers may be feeling the effects of a year of interest rate rises, but full corporate order books and strong investment spending suggest the economy has lost only a bit of froth and underlying growth is robust.
Central bank measures to rein in credit growth are beginning to bite and growth in motorcycle sales - a good pointer to consumption in a country where a car is beyond the means of most people - is slowing.
For companies, it is a different picture. Analysts say capital goods demand is strong and the economy, estimated to have grown by a cracking 9.2 percent in fiscal 2006/07, has a pipeline of investment to keep it revving at about 8.0 percent this year.
"If you look at the order books of any of the capital goods manufacturers, they are all chock-a-block," said Manju Ghodke, an economist at engineering and construction firm Larsen & Toubro Ltd.
"It is the consumer end of the market which has faced the downturn because that is where it has started biting." The central bank stepped up the pace of tightening towards the end of 2006, although not soon enough to stop wholesale price inflation touching a two-year high of 6.7 percent in January.
Annual inflation has now dropped below 6 percent and, while real estate data is hard to come by, anecdotal evidence suggests activity in the property market, which was a source of concern to the central bank, has cooled. Home loan rates have risen three percentage points to about 11 percent in the past year.
The official lending rate stands at 7.75 percent and banks' reserve requirements have been raised by 150 basis points since December as the central bank tightened its grip on surplus cash.
Credit growth, which was running at 30 percent annually, has retreated to about 28 percent. Ghodke said companies' capacity utilisation was still running above 90 percent. There are signs that manufacturing activity may be moderating. The monthly manufacturing purchasing managers' index hit its highest level in the survey's two-year history in October but March's survey showed the slowest pace of growth to date and there was only a small rebound in April.
Official data, too, shows industrial growth has fallen away from 15.4 percent annually in November, its fastest pace in more than a decade. Major business confidence indexes fell between December and March, with firms particularly concerned about demand in consumer-facing industries like housing, cars and textiles.
Sales at Bajaj Auto Ltd, India's second-largest two-wheeler producer, were 10.4 percent lower in April than a year earlier. A wild card in consumption is the annual monsoon. Farming, which makes up about a fifth of the economy, is crucial in determining demand for cars and household goods.
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