India returned to the top of Mint's Emerging Markets Tracker (EMT) in May after a six-month gap as stronger manufacturing activity and faster export growth lifted its composite score to 68.05. China climbed two places to second, while Vietnam registered the biggest monthly jump, advancing five ranks to third on the back of robust exports and sustained factory activity.
Higher crude oil prices during May weakened the rupee, increasing import costs for an economy that depends on overseas supplies for more than 85% of its crude oil requirement. Although oil prices have eased following the Israel-Iran ceasefire, the impact of the earlier surge is now spreading beyond fuel bills into factory input costs and wholesale inflation.
Launched in September 2019, Mint's Emerging Markets Tracker compares 12 emerging market economies using seven high-frequency indicators—GDP growth, manufacturing PMI, export growth, retail inflation, import cover, exchange rate movements and stock market performance.
Ranking rebound
India's return to the top was powered by stronger trade and factory activity. Merchandise exports expanded 17.99% year-on-year in May, up from 13.8% in April, while the manufacturing Purchasing Managers' Index (PMI) rose to 55, indicating faster growth in factory output.
The gains helped offset the drag from a weaker rupee, which depreciated 2.04% against the dollar during the month. India also retained an import cover of just over 10 months, providing a buffer against external shocks.
China moved up to second with a composite score of 63.18, supported by export growth of 19.39%, the fastest among the top three economies, and a 6.94% gain in equity market capitalization.
Vietnam emerged as the biggest mover in the rankings, climbing from eighth to third with a composite score of 61.09. Its performance was backed by 7.83% GDP growth, 18.52% export growth and a manufacturing PMI of 52.8, reinforcing its position as one of Asia's fastest-growing manufacturing and export hubs.
Currency pressures
The rupee depreciated 2.04% against the US dollar in May, extending its losses for a third consecutive month and marking its steepest monthly decline since March.
Among the 12 economies tracked by Mint's Emerging Markets Tracker, it was one of the weaker-performing currencies during the month. The rupee remained under pressure through the March-May period, with its average exchange rate moving from 90.7 per US dollar in February to 95.5 in May as higher crude prices and the West Asia war weighed on the currency.
A weaker rupee raises the imported cost of crude oil, liquefied natural gas, fertilisers and industrial raw materials even if international commodity prices remain unchanged. Refiners pay more for crude, transport companies face higher fuel bills, and manufacturers importing chemicals, metals and electronic components see production costs rise. Those higher costs eventually feed into freight charges and factory-gate prices if the currency remains under pressure.
Exporters receive more rupees for every dollar earned overseas, improving their competitiveness in global markets. But sectors dependent on imported inputs—including automobiles, chemicals, consumer goods and fertilizers—face pressure on operating margins unless they pass on higher costs to consumers.
Spillover effects
India's wholesale price inflation (WPI) surged to 9.68% in May—the highest in 42 months—as elevated crude prices pushed up energy and manufacturing costs. Fuel and power inflation accelerated to 30.33%, while inflation in crude petroleum and natural gas climbed to 61.51% and mineral oils to 49.82%, according to the department of promotion and internal trade.
Products such as sulphur, aviation turbine fuel (ATF), liquefied petroleum gas (LPG), sulphuric acid and bitumen recorded some of the sharpest price increases during the month. Inflation also hardened in manufactured products, with basic metals, chemicals and textiles facing higher input costs as firms absorbed the impact of costlier fuel and imported raw materials.
Wholesale inflation typically reaches businesses before consumers. Higher input costs squeeze margins in sectors such as aviation, construction, chemicals, automobiles and engineering unless companies absorb the increase or pass it on through higher prices. According to Crisil, sectors accounting for 17% of India's gross value added (GVA) face high exposure to rising energy costs, while another 39% falls in the moderate-impact category.
The recent easing in crude prices may slow the pace of cost increases, but businesses are unlikely to see immediate relief. India Ratings expects wholesale inflation to moderate to around 9.3% in June as lower global energy prices begin to feed through, while Icra also expects easing crude prices to soften WPI inflation. However, both expect the adjustment to be gradual as companies work through inventories and supply contracts signed when oil prices were higher. Food prices could also remain elevated if El Niño affects the monsoon, delaying a broader moderation in inflation.