The Indian economy is the 6th largest in the world in terms of nominal GDP and the 3rd largest in purchasing power parity. It is also described as a middle-income developing country. An economic indicator is defined as the financial data measured on a macroeconomic scale to interpret the present and future investment probabilities. It helps to measure the overall health of an economy. India is witnessing a significant shift inside the diverse economic parameters which contribute to the country's magnification and development. India is projected to become the second fastest growing economy in the G20 in 2022-23, despite a slowdown in global demand and tightening monetary policy to combat inflationary pressures. The GDP growth will slow to 5.7% in FY2024 as exports and domestic demand growth slow. Inflation weighs on consumer spending, but moderates by the end of the forecast period, and combined with improving global conditions, boosting growth to 6.9% in 2024-25, in line with the 20-year average (excluding the COVID-19 recession).
Economic indicators represent the statistics about an economy that betokens the economy's direction. They are acclimated to assessing the current financial performance and making prognostications about future performance. Our aims to analyze the leading indicators in the country's economic development and whether it is necessary to change them.
In addition to the company and industry-level input, the state of the overall economy also provides insight for investors to make appropriate decisions. Here, we optically canvass several of the most consequential types of indicators that quantify everything from economic magnification to vicissitudes in prices to unemployment in India.
Gross Domestic Product:
The gross domestic product or GDP provides the overall value of the goods and services it engenders and indicates whether an economy is growing or slowing. GDP is the sum of gross value integrated by all denizen engenderers in the economy plus taxes on any product and minus any subsidies not included in the value of the products. GDP is calculated without deductions for depreciation of fabricated assets or depletion and degradation of natural resources.
As the number of COVID-19 cases surged to more than 15,000 per day, the central government urged states to avoid large gatherings associated to August's 75th Independence Day celebrations. Delhi state has made it mandatory to wear face masks amid a rise in coronavirus cases that have sparked fears of a possible fourth wave. This, combined with the fact that the global economic outlook has weakened and monetary tightening is needed to fight inflation, means that India's economic growth prospects are less optimistic. Also, in its latest edition of the World Economic Outlook, the International Monetary Fund (IMF) has revised India's real GDP growth forecast from 8.2% in in FY2022-23 to 7.4% due to a worsening external environment and monetary tightening.
Similarly, the Federation of Indian Chambers of Commerce and Industry (FICCI) expects real GDP to revise to 7.3% from 6.5% in 2022-23, down from its previous forecast of 7.4%. FICCI considers high commodity prices, supply chain disruptions and ongoing conflicts in Europe to be major risk factors for India's economic recovery. Meanwhile, Morgan Stanley, in a research note released in July, forecast the country's economy to grow 7.2% in the 2022-23 fiscal year. Economic growth for fiscal year 2023-24 is now expected to be 6.4%, down from 6.7%, as the slowdown in the global economy hits India's exports.
The Reserve Bank of India (RBI, central bank) expects consumer price inflation to average 6.7% in 2022-23 based on an average oil price of USD 105 bbl. Inflation forecast for the second quarter of fiscal year 2022-23 (equivalent to July-September 2022) is 7.1%. It is then expected to drop to 6.4% in the third quarter of 2022-23 and further drop to 5.8% in the fourth quarter of 2022-23. ADB's inflation forecast for 2022-23 is in line with the RBI's 6.7% forecast, which was previously forecast at 5.8%. The FICCI forecast is similar to the Central Bank and ADB forecasts, with a central forecast of 6.7% and a range of 5.4% to 7%. It also sees inflation falling to about 4% from September 2022 to June 2023.
In a big announcement in early November 2021, Prime Minister Narendra Modi promised to reduce the country's CO2 (carbon dioxide) emissions to net-zero by 2070 at the COP26 Summit in Glasgow. This was the first time the government had promised a net-zero goal. India ranks fourth among the countries/regions with the highest carbon dioxide emissions after China, the United States, and the EU. This was one of Modi's five commitments on behalf of India, kenned as the panchamrit. The detailed account of the five commitments made by Modi at the global conference is as follows.
- Increase India's non-fossil fuel energy capacity to 500 GW by 2030.
- Renewable energy will meet half of the country's energy demand by 2030.
- Reducing 1 billion tonnes of carbon emissions from the total projected emissions by 2030.
- Reduce the CO2 intensity of the economy to 45% by 2030.
- The country would become carbon neutral and achieve net-zero emissions by the year 2070.
The Real Sector:
The Real sector refers to the real economic transactions of an economy. Real GDP increased by 13.5% year-on-year in the first quarter of fiscal year 2022-23. This coincides with the second quarter of calendar year 2022. Growth accelerated from 4.1% year-on-year in the fourth quarter of fiscal year 2021-22, but was lower than the 20.1% year-on-year result in the first quarter of fiscal year 2021-22.
Private consumption growth accelerates from 1.8% year-on-year in Q4 2021-22 to 25.9% in Q1 2022-23, while gross fixed capital formation (investment) rises 5.15% year-on-year to 20.15%. However, government consumption growth slowed to 1.3% year-on-year from 4.8%. In terms of foreign trade, export growth in goods and services remained strong, slowing to 14.7% from 16.85% year-on-year, while import growth surged to 37.2% from 18% growth in domestic demand.
The Industrial Production Index (IPI) posted a strong 12.3% year-on-year growth in June after rising 19.6% in May and 6.7% in April. In June, mining production was up 7.5% year-on-year, power generation was up 16.4% year-on-year, and manufacturing output was up 12.5% year-on-year.
In the June 2022 IPI application-based classification, primary goods production increased by 13.7% year-on-year, while intermediate goods production increased by 11% year-on-year. Capital goods production increased 26.1% year-on-year, while infrastructure and construction goods production increased 8% year-on-year. Durable and non-durable consumer goods grew 23.8% and 2.9% year-on-year, respectively.
The Reserve Bank of India’s (central bank’s) consumer confidence survey undertaken on a bi-monthly (every other month) basis showed some improvement to the current situation index in July 2022, with it rising to 77.3 from 75.9 in May 2022. However, the reading for July remained in the pessimistic zone, whereby above 100 is optimistic, but below 100 is pessimistic. The one year ahead outlook, measured by the future expectations index, improved marginally to 113.3 in July from 113.0 in May due to an improved outlook concerning the economic situation and overall spending, although it was capped by weaker expectations concerning employment, price levels, and household income.
In the June 2022 IPI application-based classification, primary goods production increased by 13.7% year-on-year, while intermediate goods production increased by 11% year-on-year. Capital goods production increased 26.1% year-on-year, while infrastructure and construction goods production increased 8% year-on-year. Durable and non-durable consumer goods grew 23.8% and 2.9% year-on-year, respectively. The Reserve Bank of India’s (central bank’s) Consumer Confidence Survey, which is conducted on a bi-monthly (every other month) shows the current situation index in July 2022 rose to 77.3 from 75.9 in May 2022.
The automobile industry is one of the most paramount leading bespeakers of the Indian economy and one of the most astronomically immense industries in the world. It plays a key role in both macroeconomic expansion and technological advancement. India has a strong position in the global heavy vehicle market as it is the world's largest tractor manufacturer, second largest bus manufacturer and third largest heavy truck manufacturer (IBEF). According to 2021 statistics, India's automotive industry is the fourth largest in the world (OICA). It is worth more than US $222 billion, accounting for 8% of the country's total exports and 7.1% of India's GDP, and is projected to become the third largest in the world by 2030. This US $222 billion automotive industry is projected to reach $300 billion by 2026 (Invest India).The industry attracted Foreign Direct Investment (FDI) inflow worth US$ 33.53 billion between April 2000 and June 2022 accounting for 5.5 per cent of the total FDI during the period April 2000 to March 2022.
The industry engendered a total of 22,933,230 vehicles, including passenger cars, commercial vehicles, three-wheelers, two-wheelers and quadricycles in FY2022, compared with 22,655,609 in FY2021, registering a small magnification of 1.3 per cent over the same period last year.
Domestic Sales Trends:
Total passenger vehicle sales registered a magnification of 13.3 percent in FY2122 over the same period last year. Passenger Cars decreased by about 4.9 percent, while huge increase in sales of Utility Vehicles by 40.4 percent compared to the previous year. Sales of vans increased by about 4.1% over the same period. The passenger car market was valued at USD 32.7 billion in 2021 and is expected to reach USD 54.84 billion by 2027, growing at a recorded CAGR of over 9.2 years (IBEF). The commercial vehicles segment as a whole recorded a growth of 26 percent compared to the same period of the previous year. Among commercial vehicles, medium-sized and heavy-duty commercial vehicles (M&HCVs) and Light Commercial Vehicles (LCVs) recorded about 50 percent and 17 percent respectively in FY2122compared to the same period of the previous year. Three Wheeler sales increased by about 19 percent in FY2022compared to the same period last year. Two Wheelers sales registered a de-magnification of 11 percent in FY2022over FY2021. The electric vehicle (EV) market is valued at $7.09 billion in India by 2025. According to NITI Aayog and Rocky Mountain Institute (RMI), India's EV financial industry is expected to reach $50 billion by 2030. A study by the CEEW Center for Energy Finance reveals a $206 billion opportunity for electric vehicles by 2030 in India. This will require to invest $180 billion in vehicle manufacturing and charging infrastructure.
In FY2122, total automobile exports increased by about 36 percent. Exports of passenger vehicles, commercial vehicles, three-wheelers, and two-wheelers recorded a sound growth of about 43 percent, 83 percent, 27 percent, and 35 per cent respectively. The Indian automotive industry aims to increase vehicle exports by a five times from 2016 to 2026.
Finance and Financial Sector:
India has a diverse financial sector that is expanding rapidly, both in terms of strong growth in existing financial services firms and new firms entering the market. Our monetary and financial analysis looks at how our monetary policy is transmitted to the economy via channels such as credit, bank lending, risk-taking, and asset pricing. The monetary and financial analysis additionally provides a systematic assessment of the long-term accumulation of financial disparities and their impact on the economy and inflation. By doing so, we recognize that financial stability is a prerequisite for price stability.
Inflation, as measured by the Consumer Price Index (CPI), declined from 7.41% y/y in September and 7% in August and 7.8% y/y in April 2022 to 6.77% y/y in October 2022. India's urban inflation rate slowed to 6.5% in October from 7.3% in September, and eased to 7.0% in rural India from 7.6% a year earlier.
The decline in the headline consumer price index in October was largely due to lower food inflation, which is withal the most sizably voluminous driver of the inflation basket. Core inflation, which excludes food and beverages and fuel and lights, eased to 5.97% year-over-year(y/y) in October from 6.07% y/y in September. Food and beverages prices fell 7.04% y/y in October after 8.41% y/y in September. Meanwhile, price inflation in the fuel and light categories was 9.93% y/y in October, compared to 10.39% y/y in September. Among other categories, apparel and footwear grew 10.2% y/y in October 2022.
The Reserve Bank of India (RBI, central bank) raised the monetary policy rate (repo rate) to 5.9% on September and October 2022. At the same time, the fixed facility marginal interest rate and bank interest rate rose to 6.15%. The policy statement shows that the RBI's Monetary Policy Committee remains focused on withdrawing monetary stimulus.
The money supply in an economy is the total amount of currency in circulation at a given time. This includes cash and equivalents such as banknotes, coins and bank deposits. It is an important concept that greatly affects the financial and economic situation of a country. It is a very important financial indicator and affects the economy in many ways. Therefore, the government controls the circulation of money through monetary policy. Money supply measures include types M1, M2, M3, and M4 based on liquidity. According to RBI, These types of money supply measurements summarized as M1= Currency with the public +Demand deposits with the banking system + ‘Other’ deposits with the RBI. M2= M1 + Savings deposits of post office savings banks. M3= M1+ Time deposits with the banking system (Net bank credit to the Government + Bank credit to the commercial sector + Net foreign exchange assets of the banking sector + Government’s currency liabilities to the public– Net non-monetary liabilities of the banking sector ). M4=M3 + All deposits with post office savings banks (excluding National Savings Certificates). M2 money supply increased by 8.4% year-on-year to reach INR 54.15 trillion at the end of September 2022. Then in October, money supply growth accelerated to 10.1% year-on-year (and reached INR 55.13 trillion).
The value of the Bombay Stock Exchange's SENSEX stock market index rose from 57,427 at the end of September 2022 to 60,747 at the end of October 2022, up 6% year-on-year. The monthly average for October 2022 is 58,632.37, down 211.06 points from September.
The Indian rupee continued its decline against the US dollar in Q3 2022, dropping to historic lows. After ending the period at INR 81.8 per USD, it continued to drop to INR 81.989 per USD by the first week of November 2022. At INR 74.30 per USD since the end of 2021, it has followed a stable depreciation path throughout the year.
Finance Minister Nirmala Sitharaman urged state governments to assess their financial capacity before proceeding with distributions to citizens. She also asked these governments to make budgetary provisions for the promised subsidies so that their finances would not be affected. The views were made in the light of ongoing debates between central and state governments over subsidies commonly pledged in election promises and their impact on the fiscal health of certain states. If state governments don't take it into account, power subsidies could impact related public sector entities such as power generation and distribution companies.
Rajiv Kumar, former vice chairman of NITI Aayog, a public policy think tank, said state governments should refrain from giving “non-merit freebies” beyond their fiscal capacity. However, he recognized the importance of performance-based public offerings, stating that “any transfer payments whose social rate of return is higher than any private rate of return, in other words, which has positive externalities, is worth doing.”
The International Monetary Fund (IMF) recommends India slowly ease fiscal and monetary stimulus to maintain a healthy external sector balance in the medium term. The External Sector Report, released on August 4, suggested that multilateral institutions should also proceed with the liberalization of investment regimes, especially by reducing tariffs on intermediate products.
According to revenue secretary, Tarun Bajaj, the government believes it can meet the fiscal deficit target of 6.4% of GDP for FY2023 that it outlined in the budget in February. He also added that the government would be able to handle larger deficits without increasing market borrowing. This is because high inflation means the government can expect nominal GDP to exceed its budget to meet the projected increase in spending in the ongoing fiscal year. The State Bank of India expects the budget deficit to reach 6.5% of GDP this year.
On August 3, 2022, the central government lowered windfall taxes on aviation turbine fuel (ATF) and diesel exports, but increased taxes on domestic crude oil. Diesel export tax was reduced from INR 11 to INR 5 per liter while ATF was reduced to zero and crude oil windfall tax was increased from INR 17,000 to INR 17,500 per tonne.
The central government debt increased from INR 134.83 trillion in Q1 2022 to INR 141.04 trillion in Q2 2022, while growth increased from 16% to 16.6% y/y. The growth of domestic public debt, which constitutes more than 90% of the total public debt accrued, declined to 15.5% y/y in Q2 2022 from 19.6% y/y in Q1 2022. External public debt registered a slight decrease in growth, from 26.8% y/y in Q1 2022 to 26.7% y/y in Q2 2022, taking it up to INR 8.52 trillion. Debt pertaining to other liabilities, which forms a small part of the overall central government debt, increased to INR 12.31trillion in Q2 2022 from INR 11.88trillion in Q1 2022.
Goods and services tax (GST) collections stood at their second highest level ever at INR 1.52trillion in October 2022, which was 17% higher than the GST revenues in the same month of 2021.
After India banned wheat exports on May 13, 2022 to curb rising domestic prices, India has restricted wheat flour exports from July 12, 2022. According to a statement from the Directorate General of Foreign Trade (DGFT), flour exports are subject to the recommendations of the Inter-Ministerial Commission on Wheat Exports,and all exporters of wheat flour will need to seek clearance from the committee before taking an export order. Subsequently, from 14 August 2022, the central government restricted the export of wheat flour derivatives such as refined wheat flour, semolina and whole grains. Similar to wheat flour exports, these derivatives are now subject to recommendations of the inter-ministerial committee on Wheat Exports. The Ministry of Commerce & Industry’s Agricultural and Processed Food Products Export Development Authority (APEDA) has set an export target of USD 23.6bn for FY2023. At more than 300 scheduled events, APEDA will inform agricultural exporters about sanitary and phytosanitary regulations that pose trade barriers, especially in developed countries. It aims to undertake regular outreach programmes using several platforms to create a strong connection between farmers, exporters, and food processors, among others, informing them about products that have considerable export potential. The panel will also update agricultural exporters on each country's import requirements to meet their export targets.
Similar to APEDA, the Marine Products Export Development Authority (MPEDA) expects seafood exports to grow 14% to USD $8.9 billion in FY2023. In FY2021-22, India's seafood exports were worth USD $7.8 billion. According to MPEDA chairman K N Raghavan, seafood exports are increasing despite logistical problems. The agency aims to gain access to new export markets for seafood and diversify India's seafood export basket, currently dominated by shrimp, which accounts for nearly 74% of total turnover. According to government data, the share of the MSME sector in India's total merchandise exports will increase from 49.75% in FY2020 and 49.35% in FY2021 to 45% in FY2022, even when India’s exports increased to a record high of USD 421.8bn in FY2022. According to Ajay Sahai, the director general & chief executive officer of the Federation of Indian Export Organisations (FIEO), MSMEs are not big players in commodity exports, which have seen a jump in prices leading to a substantial rise in overall merchandise exports. However, he expects the share of MSMEs in total exports to rise to over 60% in five years.
After signing FTAs with the United Arab Emirates and Australia in early 2022, India is rapidly pursuing similar deals with other countries. The Commerce & Industry Ministry stated on August 11 that India and the UK intend to sign a free trade agreement by the end of October 2022 after the fifth round of negotiations between the two countries was signed on July 29. Meanwhile, the UK India Business Council, in the report “Opportunities for UK Regions in India: An Analysis of Key Sectors for Collaboration” sees opportunities for trade, investment, and collaboration with India in the fintech, food and beverage, and electric vehicle segments, among others. Like the UK, India seeks to pursue a free trade agreement with Canada.
Merchandise exports declined by 16.65% y/y to USD 29.78billion in October 2022, which compares to 43.38% y/y growth in October 2021. Non-oil exports constituted 84.05%, or USD 25.03billion of overall goods exports in October 2022, while oil exports accounted for 15.95% or USD 4.75billion. Totalling USD 56.69billion in October 2022, merchandise imports were up by 5.7% y/y. Oil imports comprised 27.96%, or USD 15.85billion in October 2022, while non-oil imports accounted for 72.04% or USD 40.84billion of overall imports.
As a result, the goods trade deficit widened from $25.71 billion in September 2022 to $26.91 billion in October 2022. The October figure is almost 1.5 times from $17.91 billion trade deficit recorded in October 2021.
India's services exports set a new record of US$254.4 billion in 2021-22. The new record for 2021-22 surpassed US$213.2 billion high in 2019-20. In June 2022, total revenues from service exports were US$25.3 billion, with service import invoices of US$15.8 billion.
India's balance of payments current account deficit narrowed to USD 13.4 billion (1.5% of GDP) from USD 22.2 billion (2.6% of GDP) in Q4 2021 to Q4 2022, reflecting the first quarter of calendar year 2022. In the third quarter of fiscal year 2021-2022. At the same time, FDI increased from 1.05% of GDP in Q3 2021-22 to almost 2% of GDP in Q4 2021-22.