The Indian economy continued to slow in July, with most indicators of domestic demand still flashing red in June, the latest edition of the Mint Macro Tracker shows.

The tracker, launched last October, provides a monthly state-of-the-economy report based on trends across the 16 high-frequency economic indicators. July was the third month in a row that exactly half of the sixteen indicators were in red (below the five-year average trend). Of the remaining, seven were in green (above the five-year average trend), while one maintained trend.

The consumer economy continues to remain the weakest spot, with all four consumer economy indicators --- passenger vehicle sales, tractor sales, two-wheeler sales, and domestic air passengers growth --- flashing red for the sixth successive month.

Within the consumer economy, the slowdown has been most pronounced in the automobile sector, where demand dropped sharply in the aftermath of the NBFC crisis. According to an Edelweiss report on Apr-Jun corporate earnings released earlier this month, auto sector companies witnessed a 7% revenue decline in the first quarter of fiscal 2020. The report also highlighted weak performance of FMCG companies, indicating a broader consumption slowdown.

The weakness in demand is also evident from the ease of living indicators. Inflation continues to remain muted, and rural wage growth continues to remain anaemic. Unsurprisingly, the members of the Reserve Bank of India’s monetary policy committee (MPC) expressed graver concerns about growth than about inflation in their deliberations ahead of the policy rate cut in August, the recently released minutes of the meeting show.

The industrial sector report card shows a mixed picture, and appears a tad better compared to the previous month. Of the four industrial sector indicators, exactly two are flashing green and two, red. Rail freight traffic growth was in the red (below five-year average) for the second successive month in July while core sector growth fell to a 50-month low of 0.2% growth as per the latest reading of June. But the purchasing managers’ index (PMI) for July turned green (it was flashing amber earlier) even as non-food credit growth remained in the green category (above five year average) for the 15th straight month.

The picture on the external sector has not changed much from last month with the latest reading of current account deficit (for Jan-Mar) giving a face-lift to the sector’s report card. Although the more recent trade balance (as per cent of total trade) data appears to be worrying, the trade deficit could stabilize in the coming months as weak global demand would limit rise in commodity prices, keeping India’s import bills in check.

The big threat right now is the intensifying global slowdown, with an escalating trade-cum-currency conflict prompting fears of a global recession. A recent OECD report projects that the growth of real gross domestic product (GDP) in the OECD area could slow down to 0.5% in the second quarter of 2019, compared with 0.6% in the previous quarter.

The raft of measures announced by finance minister Nirmala Sitharaman on Friday, including rollback of enhanced super-rich tax on foreign and domestic equity investors, a package to address distress in the auto sector, and upfront infusion of 70,000 crore to public sector banks has lifted market sentiments but it is perhaps the windfall gains from RBI’s coffers that is likely to help the government paper over its weak finances and help it stick to the fiscal deficit targets without much of creative accounting.

Yet, it is worth asking whether the transfer will weaken RBI’s fire-fighting abilities in the event of a global shock, and whether this transfer would mean that the government does not any longer have a pressing need to undertake bold structural reforms to fix India’s factor market problems. In that case, this transfer may at best be a pyrrhic victory for the government, and only a temporary booster dose for the economy.