After showing signs of improvement in December, India’s economic report card deteriorated again in January, with 10 of the 16 high-frequency indicators tracked by the Mint Macro Tracker in the red (below the five-year average trend).

Of the remaining six, only three indicators were in green (or above the five-year average trend) as of January, while three maintained trend. This month’s performance undid the improvements seen a month ago when six indicators were in the green and nine were in the red.

The tracker suggests that the economy is in a worse shape compared to a year ago when six indicators were in red, and six in green. This is also the eighth month in a row when at least half of the 16 indicators were in the red.

The Mint Macro Tracker, launched in October 2018, provides a monthly state-of-the-economy report based on trends in 16 indicators across four segments: consumer economy, producer economy, external sector, and ease of living.

The deterioration in January is largely on account of the external sector. The score card of the external sector worsened on three counts—the contraction in labour-intensive exports worsened to -8% in January from -3% a month ago, trade deficit (as per cent of total trade) widened to 23% from 17% and the rupee fell against the dollar (-0.2%), having appreciated last month (0.4%). Only the import cover (at 11.5) remained in green.

India’s external sector woes are likely to have only worsened in February with the outbreak of the Coronavirus (COVID-19) virus affecting trade although, the impact on India’s trade should be lower than that of other economies in the region. A bigger concern could be contagion from global financial markets, which had not anticipated the full impact of the spread of the virus on global supply chains. If the financial contagion spreads faster than the contagion of the virus itself, both equity and currency markets in India will be hit hard.

Domestic woes add to a glum external outlook. Demand indicators have been weak for a long time now. The new worry is retail inflation, which soared to 7.6% in January, beyond RBI’s targeted range, dashing hopes that inflation had peaked out in December. Rising inflation at a time of slowing wage growth has meant real rural wages have actually shrunk compared to the year-ago period, suggesting that life in the countryside is only getting tougher.

All four indicators of the ease of living scorecard —CPI inflation (7.6%), core CPI inflation (4.2%), real rural wage growth (-2.1%) and job outlook (-1.6%)—have deteriorated compared to earlier months.

Meanwhile, the performance of the consumer economy segment and producer economy segment continue to be weak. Three of the four consumer economy indicators—passenger vehicle sales, broadband subscriber base and air passenger growth—remain in the red, despite some improvement in passenger vehicle sales. Passenger sales contracted 10% year-on-year in January compared to 13% in December. Only tractor sales growth, at 4.8% in January (in line with trend), has seen improvement in the last two months.

The producer economy scorecard was more mixed. The composite Purchasing Managers Index (PMI) climbed to a seven year high of 56.3 in January and core infrastructure industry growth turned positive in December (the latest month for which the data is available), having shown contraction over the four earlier months. On the downside, non-food bank credit growth and rail traffic growth slowed. At 7% as of December, non-food credit growth was the lowest in 26 months .

“Improvements in the latest high-frequency indicators such as PMI data suggest that the economy may have stabilized. While the economy may well begin to recover in the current quarter, we expect any recovery to be slower than we had previously expected," said Moody’s as it revised India’s growth forecast to 5.4% for 2020 and 5.8% for 2021, down from its previous projections of 6.6% and 6.7%, respectively.

While forecasts about the economic growth vary across institutions, there appears to be a broad consensus among economists that the recovery in economic momentum is likely to be slow. As of now, the brown and dead shoots outnumber the green shoots.

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