Mumbai: India’s economic report card continues to be in the red as the year draws to a close, with 10 of the 16 high-frequency indicators below the five-year average trend as of November, according to the latest edition of the Mint Macro Tracker.

This comes despite marginal improvements in a few indicators of economic activity.

The tracker, which was launched in October last year, provides a monthly state-of-the-economy report based on trends across the 16 indicators.

This is the sixth month in a row when half or more of the 16 indicators were in red or below the five-year average trend. Only three indicators were in green, or above the five-year average trend, for the latest month, while three maintained the trend.

The latest reading shows a significant deterioration when compared to a year ago, when six indicators were in red, while eight were in green.

The consumer economy scorecard appears particularly bleak, with vehicle sales growth losing momentum, after hinting at a turnaround in the previous month. At the same time, the decline in tractor sales worsened. Domestic air passenger growth showed signs of improvement but still remains in the red (below the five-year average trend).

The producer economy score-card saw an improvement thanks to an uptick in the composite Purchasing Managers Index (PMI), which emerged from the red after two months. The PMI composite index, which reflects private sector activity across manufacturing and services sectors, signaled expansion in activity in November (a reading above 50) after two months of contraction. The producers’ side of the economy saw other marginal improvements. The non-food bank credit growth increased slightly, while the rail freight traffic growth turned positive. However, both indicators remained below the five-year average trend. The contraction in core infrastructure industries intensified, according to data for October published last month.

The external sector score-card saw a deterioration last month. Both currency movement (against dollar) and the overall trade balance are flashing amber now, after being in green in the month-ago period. The labour-intensive export indicator turned red because of a sharp drop in labour-intensive exports in November. There was, however, a marginal improvement in the import cover.

Even as economic activity remained fragile, inflation picked up last month, primarily reflecting higher food prices, especially in vegetable prices. Core inflation (excluding volatile items such as food and fuel) has so far remained benign but tariff price hike affected by the three major private telecom companies in early December and the potential resetting of GST slabs to shore public finances can emerge as significant risks to underlying inflation. Seasonal spikes in vegetable prices could further add to the problem, a Nomura report dated December 13, 2019 warned. Nomura expects December CPI inflation to breach the RBI’s upper bound target of 6%.

Higher inflation will also put pressure on real rural wages (wages adjusted for inflation), which have been anaemic for quite some time now. This would pull down purchasing power in the countryside further and add to the rural slowdown the country has been witnessing, impacting aggregate demand, which remains weak.

India’s macro-economic outlook is ‘more subdued and uncertain than in recent years’, the International Monetary Fund (IMF) said in its latest country report on India.

With the monetary policy committee (MPC) of the Reserve Bank of India pausing on rate-cuts in its December meeting, the ball has been lobbed in the finance ministry’s court, with the government expected to lead the charge to revive the economy.

Will the Budget be able to outline a revival plan for the economy and be transparent about the state of public finances at a time when revenue collections are dwindling? The answer to that question will determine how India’s scorecard might look in the coming months.


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