India’s economic activity stayed resilient in March though the weakening pace of exports and an increase in unemployment dimmed the outlook for the country that’s surpassing China as the most populous nation.  

While the needle on a dial measuring the so-called Animal Spirits was unchanged at 5 for a third straight month, a jump in collections from taxes levied on consumption showed Asia’s third-largest economy was ticking along. That’s the reading from the overall activity tracker comprising eight high-frequency indicators compiled by Bloomberg. 

The readings come in the backdrop of the Reserve Bank of India pausing rates for the first time since May to evaluate the impact of 250 basis points in rate increases so far and to support growth. Retail and wholesale price gains have eased on still-elevated rates, spurring calls for a longer pause.

Last week, India’s Finance Minister Nirmala Sitharaman said her government was making “enough efforts” to ensure the economy stays buoyant though she expressed concern over the OPEC+ output cut and the impact of decisions related to Russia’s war in Ukraine. Weakness in demand for manufacturing goods and services activity could be a drag on India’s recovery, she added. 

Here are more details from the animal spirits barometer, which uses a three-month weighted average to smooth out volatility in single-month readings:  

Business Activity 

Purchasing managers’ surveys showed manufacturing activity improved as pressure on supply chains eased on increased raw materials availability. Activity in the services sector moderated in March from a 12-year high in the previous month, bringing the composite index down to 58.4 from 59 in February.

“A sizable proportion of services firms hiked their selling prices to hedge against rising costs,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. 

Exports 

Exports dropped 13.9% in March, declining for a fourth straight month, while imports fell 7.90% from a year ago. 

“Headwinds from a slowing global economy are beginning to weigh more on exports,” said Rahul Bajoria, an economist at Barclays Plc. Electronics exports gained traction, rising 57% in March from a year ago as major mobile equipment manufacturers are setting up production units in India with the China-plus-one strategy gaining ground, he said. 

Apple Inc. now makes almost 7% of its iPhones in India and opened company-owned stores this week in the South Asian country to push retail sales. 

Consumer Activity 

Liquidity in the banking system swung to a surplus in March, while credit growth moderated to 15%, from 15.52% in February, central bank data showed. 

Goods and services tax collections, which help measure consumption in the economy, rose 13% from a year earlier to 1.60 trillion rupees ($19.5 billion) in March — the second-highest level in the history of the six-year-old levy.

New vehicle registrations slowed to 14% in the month from a 16% increase in February, according to data from the Federation of Automobile Dealers Associations. Yet passenger vehicle sales growth improved to 14.42% year-on-year, from a 10.9% rise a month ago.

Market Sentiment

Electricity consumption, a widely used indicator to measure demand in the industrial and manufacturing sectors, has been moderated. Peak demand in March fell to 170 gigawatts from 181 gigawatts a month ago and soaring temperatures across India could well increase power consumption in the months to come. The unemployment rate climbed to 7.80%, from 7.45% a month ago, according to data from the Centre for Monitoring Indian Economy Pvt, as companies tightened purse strings after the festive season.