Keep an eye on these economic indicators in 2023

Manufacturing sector, which contributes about 17% to India’s GDP, is crucial for job creation. Photo: Mint
Manufacturing sector, which contributes about 17% to India’s GDP, is crucial for job creation. Photo: Mint


Key indicators reflect an improvement in economic activities but geopolitical headwinds, inflation and manufacturing output are things to watch.

Global headwinds, tightening monetary policy and the lingering effects of the pandemic have combined to create a gloomy global outlook. However, supported by domestic growth, India is projected to be one of the world’s fastest growing economies. Mint analyses.

What’s the current state of the economy?

In its December bulletin, the Reserve Bank of India said that with balance of risks being tilted towards a darkening global outlook and emerging markets appearing more vulnerable, the Indian economy needs support from domestic growth drivers. Key macroeconomic indicators such as GST collection, Purchasing Managers’ Index, automobile sales (up 26% in November 2022 from a year ago) and power consumption (up 13.6% from a year ago) reflect an improvement in industrial and commercial activities. However, geopolitical headwinds, inflation and manufacturing output are things to watch out for.

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What does the data for credit, deposits show?

The trend in bank credit growth has reversed, with disbursals higher than deposit mobilization. Credit growth in September was 17.2%, against aggregate deposit growth of 9.8%. Sectoral deployment of bank credit for November 2022 showed credit growth to industry accelerating to 13.1% from 3.4% in November 2021. With credit growth to large industry rising by 10.5% against a contraction of 0.6% a year ago and to micro, and small industries rising by 19.6% as against 15.3% a year ago, the indicators are pointing towards an uptick in the capex cycle of the economy.

Uncertain outlook
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Uncertain outlook

How is the manufacturing sector faring?

While India’s GDP growth in Q2FY23 was 6.3%, manufacturing contracted by 4.3%. The sector, which contributes about 17% to India’s GDP and employs over 27.3 million, is crucial for job creation. The global situation and monetary policies could take their toll and weigh on output. However, waning input costs and a revival of private capex could prove to be the silver lining.

What about net exports?

The global economy has been facing a slowdown and many developed nations are expected to enter a recession, including India’s export destinations such as the US and EU. This could affect export demand. Merchandise exports recorded a flat year-on-year growth of 0.6% in November, following a contraction of 12.1% in October. Imports rose by 5.37% in November widening trade deficit to $23.89 billion. While India is not an export-led economy, exports and imports contribute about 21.5% and 26.3% to its GDP.

Is there a let-up in inflation?

Rising inflation has prompted global central banks to adopt tighter monetary policies. While November did show headline inflation in India moderating by 90 basis points to 5.9% due to lower food inflation, core inflation remained steady at 6%. The RBI has increased the repo rate by 225 basis points since May 2022. With heightened growth concerns, it might be time for it to re-think its restrictive approach to monetary policy.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.

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