Mumbai/New Delhi: India slipped a place in rankings of key emerging markets (EM) in November, the latest update of Mint’s Emerging Markets Tracker show. It came third among 10 markets considered by the tracker in November, behind first-ranked Philippines and second-ranked China. India was in the second position in October.

Mint’s Emerging Markets Tracker, launched three months ago to track seven high-frequency indicators across 10 large emerging markets, helps us make sense of India’s relative position in the emerging markets league tables. The seven indicators considered in Mint’s Emerging Markets Tracker encompass both real activity indicators (such as PMI manufacturing and real gross domestic product or GDP growth) as well as financial metrics (such as exchange rate movements and changes in the stock market capitalization). The final rankings are based on a composite score, which gives equal weights to each of the seven indicators.

While India’s exports performance remains lack-lustre, it still appears better placed compared to several other large emerging markets
While India’s exports performance remains lack-lustre, it still appears better placed compared to several other large emerging markets

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Despite a slowdown in India’s domestic economy, India continues to remain relatively better placed than several other large emerging markets, the data show. Although India’s officially recorded growth figure slipped to 4.5 percent in the September-ended quarter, this is higher than that recorded by most other emerging markets over the same period. India’s manufacturing activity, as recorded by the purchasing managers’ index (PMI), saw an improvement last month, and India continues to remain one of the few economies where the PMI score suggests an expansion in manufacturing activity.

India’s exports performance remains lacklustre, but still appears better placed than several other large emerging markets that have witnessed sharp declines in their export performance.

A low base effect has also helped India’s cause, helping improve its rankings in the past two months after several months of decline earlier, when it found itself among the bottom half of the league tables. The other notable improvement has been in Turkey, which seems to be emerging from a deep macro-economic crisis, and is no longer the worst-ranked emerging market. Mexico replaced Turkey at the bottom of the heap last month, the data show.

Both Turkey and India’s rise have been powered by the stock markets over the past few months, with stock market capitalization rising higher in these two economies compared to most other economies. Both economies are also witnessing unusually high inflation, although India is nowhere close to Turkey’s double-digit headline inflation yet.

The selection of the emerging markets in Mint’s Emerging Markets Tracker is based on the International Monetary Fund (IMF) classification of emerging and developing economies. The 10 emerging markets selected were the largest economies in this group for which consistent and comparable time series data were available.

India’s stock markets rose last month on the back of foreign flows, but the rupee depreciated against the dollar, one of the few emerging markets currencies to do so.

However, despite a weak currency, exports remain sluggish. It is only the relative decline of other economies that makes India’s exports performance appear reasonable. However, in case global trade picks up pace in the coming months on the back of a US-China trade deal, it is likely that other economies would benefit more compared to India.

India’s scorecard in the coming months is likely to depend more on domestic circumstances, and in particular, on India’s ability to fuel growth without fueling inflation. India’s central bank, which led the rate cutting cycle among emerging market central banks earlier this year, opted to pause rather than ease policy rates earlier this month, citing risks to inflation. What has left unsaid was the threat of fiscal slippages feeding into the inflationary spiral, transforming a transitory price shock in food items into a more persistent threat. Having announced corporate tax cuts and facing a slowdown in tax collections, India’s finance ministry is struggling to limit the extent of fiscal slippages. The surplus transfer from the central bank earlier this year will help cushion the blow but most economists expect the fiscal deficit to widen despite that cushioning.

How that impacts India’s macroeconomic balance sheet, and whether it helps revive animal spirits in Asia’s third largest economy will determine India’s ranking in the league tables in the months ahead.