In September, 10 indicators were in the red, a sharp deterioration from signs of strengthening recovery in August. This was mainly due to how global semiconductor shortages were choking the auto industry. As these problems persist, new global factors have emerged that are hurting India’s trade balance and the rupee’s exchange rate. Other pain points such as weak consumption growth and inflationary pressures also remained.
However, some indicators also posted their best growth in years. Three of the four indicators that were green, or above their five-year trend, are above pre-pandemic highs. The Purchasing Managers’ Index (PMI) in particular, a measure of business activity, hit a decade high.
Launched in October 2018, Mint’s Macro Tracking provides a comprehensive report on the state of the economy based on trends in 16 high-frequency indicators in four segments: consumer economy, production economy, foreign sector, and comfort of living. .
Some indicators have been on the rise in November so far. Since mid-October, a business recovery index managed by Nomura, which incorporates data on mobility, electricity demand and labor, has reached new highs every week. However, in a November 7 report, the brokerage also pointed to headwinds for medium-term growth, such as the impact of coal shortages on industrial activity in the coming months, as well as pressures inflationary and trade shocks. A full range of data for November will not be available until next month.
All four indicators of consumer economics remained in the red, but with slightly reduced severity.
The auto industry continued to be plagued by the already widespread global semiconductor shortage crisis, causing wholesale passenger car sales to drop 21% (annualized) from the same period two years ago. Vehicle registrations, which are more closely tied to retail sales, fell 5.3% year-over-year (year-over-year), marking the worst performance of the holiday season in a decade, a said the Federation of Automobile Dealers Associations (FADA).
However, domestic air travel continued to climb and reached its level closest to the level two years ago since the start of the pandemic. Domestic airlines carried nearly 9 million passengers in October, just 14% (annualized) below the October 2019 figure.
Tractor sales growth was below the five-year average, but in absolute terms the industry recorded its highest domestic sales on record in October due to resilient rural demand fueled by expectations of a large harvest, good sowing and easy credit.
The producing economy outperformed the consumer segment, driven by strong PMI growth due to widespread expansion in the manufacturing and service sectors. IHS Markit, the agency that publishes the data, noted the largest monthly expansion in new business in more than a decade, with no negative impact of price increases on demand.
Rail freight, the biggest contributor to rail revenue, also saw its fastest growth since data was collected for the tracker and was well above its five-year average.
At the same time, the performance of the external sector weakened with two indicators slipping into the red, against only one in September. The main cause is high crude prices and the depreciation of the rupee: the currency recorded its worst performance against the dollar since April, falling 1.8% in October.
The trade deficit reached record levels but remained high, mainly due to an increase in oil imports. Core imports, which exclude oil, are expected to remain high in the near term, due to import bills for coal amid domestic shortages and the possibility of easing supply pressures in sectors such as automotive, ICICI Securities said in a Nov. 3 report.
However, export growth in labor-intensive sectors such as tobacco, gemstones and jewelry, and jute manufacturing, among others, had its best month in nearly two years, with annualized growth of 6.4% compared to two years ago.
The comfort of life segment shows no signs of improvement. Retail price inflation edged up slightly even as the overall figure of 4.5% appeared to remain in the Reserve Bank of India’s (RBI) 2-6% range. However, this masks the base effect: a comparison over two years shows that inflation was outside this tolerance range (6%). Concerns about high global commodity prices could keep prices on the rise despite the reduction in excise duties on fuel.
Nomura economists expect the RBI to maintain its accommodative policy in favor of growth at least for this fiscal year. However, rising inflationary pressures could push this political normalization forward.
Meanwhile, the stress of the workforce is not steadily decreasing. A survey by the Center for Monitoring Indian Economy estimated the activity rate at 40.4% in October, down from 40.7%. Wage growth figures are not yet available for October.
With the sustained decline in covid-19 cases and improved vaccinations, India appears to have averted a third wave of the pandemic. In the near term, however, bottlenecks on the global supply side and high energy costs will be key to keeping the country on track for recovery, as October data shows.
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