MUMBAI - India’s booming economy is the envy of other major markets. But beyond the hype and expectations, people who watch the country closely are flagging warning signs.

The nation is heading for a slowdown, analysts who cover it say, as rising inequality squeezes consumer spending among the poor – and the hundreds of millions in the middle class.

The pessimism comes even after the latest growth figures blew past estimates last week, rounding off an expansion of over 7 per cent for the fiscal year.

“Consumer fatigue appears to be setting in,” said Mr Kunal Kundu, an economist with Societe Generale (SocGen).

The economy may slow “substantially”, he added.

Any cooling – especially one driven by inequality – would pose a challenge for Prime Minister Narendra Modi as he seeks a third term in general elections in 2024. It would also increase the chances the central bank, which decides on monetary policy this week, will cut interest rates earlier than expected.

And it would temper hope – at least in the short term – that India will do more to propel the global economy as powerhouses such as China slow.

India grew by 6.1 per cent in the three months ended March compared with a year earlier, well beyond the 5 per cent estimate of economists surveyed by Bloomberg, driven mainly by increases in service exports and government spending.

It expanded 7.2 per cent for the fiscal year through March, continuing a post-pandemic recovery that outstrips major peers.

But Nomura Holdings, HSBC Holdings, Standard Chartered, Goldman Sachs and others say growth will decelerate this fiscal year, with Nomura seeing it falling to 5.5 per cent.

The banks pointed to other factors, such as the impact of rising borrowing costs on spending, and slowing global growth affecting exports.

SocGen and others say consumer demand will decline as the nation’s rich get richer but others struggle with the cost of living. This is creating what is known as a K-shaped recovery in consumption, where luxury items sell well, but basic goods go in the opposite direction, Mr Kundu said.

Private consumption fell 3.2 per cent in the three months ended March from the previous quarter. This may be due to reduced spending by the urban middle class, which should come as a concern for the country’s growth, said Ms Rupa Rege Nitsure, chief economist at L&T Finance, the commercial and personal finance arm of India’s largest construction firm.

“It’s not a broad-based recovery,” she said, adding that this means it will be difficult to sustain.

Even spending by the 65 per cent of the population living in rural areas, a bright spot in the recent data after a strong harvest, is expected to slow if an El Nino weather pattern brings drought that disrupts the monsoon season, which plays a vital role in the lives of hundreds of millions of people who depend on agriculture.

Despite the pessimism, there are many positives about India’s economy.

The service sector is booming, while a manufacturing purchasing managers’ index reached a 31-month high in May.

Tax collections hit a record in April, inflation is easing, and foreign-exchange reserves are among the largest globally.

Even with the expected slowdown, India will still be the fastest-growing major economy in the world in 2023, according to International Monetary Fund (IMF) projections.

Germany is in recession, some observers expect the United States to follow, and the IMF projects China will grow 5.2 per cent in 2023. BLOOMBERG