MPC: Ahead of MPC meet outcome: Indian economy in charts

After a respite from the disruptions caused due to the Covid-19 pandemic, the global economy is currently stuck in ambiguity owing to certain geopolitical developments over the last few weeks. The Indian economy too is fazed by uncertainties. The RBI Governor Shaktikanta Das has a difficult task at hand to control inflation in a situation where commodity prices are spiked with volatility and patchy economic recovery.

We take a look at a few economic indicators to track the performance of the Indian economy as of March 2022. Overall, the indicators show a mixed trend wherein some activities like PMI services, power generation showed some amount of improvement while PMI manufacturing, exports, and toll collections showed contraction.

Overall eco growth

After Covid recovery analysts were upbeat on prospects for the Indian economy but following the Russia-Ukraine war, economists have issued downgrades for India, a country that is highly dependent on oil imports.

Recently, ICRA revised its forecast for India’s real GDP growth in FY2023 to 7.2% from 8.0% forecast earlier. “Protracted geopolitical tensions and high commodity prices pose downside risks to the growth outlook, with margin compression set to squeeze value added growth during the period of the conflict,” it said.

Trade

India’s March export growth moderated to 14.5% year-on-year from the 25.1% growth witnessed in February. Import growth too moderated to 20.8% in March from 36.1% in February. India’s provisional trade deficit in March moderated to US$18.7 billion from US$20.9 billion in February.

Research firm Nomura in a note to clients wrote that it expects India’s trade deficit to remain elevated, in part owing to India’s higher supply dependence on specific products, such as edible oils, fertilisers and project goods. The broader rise in commodity prices, including fertilisers, natural gas, coal, metals, and edible oils, is also likely to negatively impact imports.

Current Account

In Q3FY22, India’s current account balance stood rose to a 36-quarter high of US$23 billion (or 2.7% of GDP), higher than Q2FY22’s US$10 billion (or 1.3% of GDP). Rising oil prices may take a toll on the current account. Analysts say a 10% rise in global crude oil prices widens India’s current account deficit by 0.3% of GDP.

Nomura has projected a current account deficit of 3.8% of GDP for FY23, vs around 1.6% expected in FY22.

Inflation

Rising inflation remains a sticky spot for the Monetary Policy Committee (MPC) as the increase in input costs threatens the overall demand scenario and thereby the patchy recovery. Retail inflation inched up to an eight-month high of 6.1% in February 2022 while wholesale inflation remained elevated at 13.1% in February 2022.

External sector risks owing to the Russia-Ukraine war are set to follow inflation and fiscal risks already materialising, attesting to a worsening macroclimate for India.

Many commodities, including the likes of steel, cement, and even labour, are facing inflationary pressures. This may be attributed to the rising raw material shortage and global material prices apart from logistic challenges and increasing fuel prices.

Industrial growth

The latest data shows that the output of eight core sectors grew in February on an annual basis, aided by a favourable base. On a sequential basis, a broad-based contraction was seen.

The index grew at a four-month high of 5.8% in February 2022, on a low base of 3.3% contraction seen in the same period a year earlier. Among sectors, the sharpest contraction was seen in fertilisers (-11%), crude oil (-9.5%) and natural gas (-9.1%).

GST collection

The gross goods and services tax (GST) collection in March touched an all-time high of over Rs 1.42 lakh crore, breaching its earlier record of Rs 1.41 lakh crore set in January 2022.

The revenues for March 2022 are 15% higher than the GST revenues in the same month last year.

“The improvement in revenue has also been due to various rate rationalisation measures undertaken by the Council to correct inverted duty structure,” the ministry said in a statement.

PMI

The S&P Global India Manufacturing Purchasing Managers’ Index fell from 54.9 in February to 54.0 in March. Concerns about inflation dampened business confidence as it fell to its lowest level in two years.

At the same time, the services PMI rose to 53.6 in March from 51.8 in February. “Input costs increased at the sharpest pace in 11 years at the end of fiscal year 2021/22, but companies mostly absorbed additional cost burdens and raised their charges only moderately,” the firm said in its report.