GDP nos were out this week and it put India's GDP growth in January to March period at 4.1%. The Indian economy slowed down for the third straight quarter; from 20.3% in the first quarter and 8.5% in the second quarter, it had slowed to 5.4% in the third quarter.While the overall growth for FY-22 is estimated at 8.7%.
During March quarter, agriculture grew at 4.1%, while manufacturing contracted 0.2%. Public administration, defence and other services, which represent government expenditure, grew 7.7% during the period, supporting the overall economic growth. Among other sectors, mining and quarrying and construction grew 6.7% and 2%, respectively.
Most important thing is, from the pre-pandemic year of 2019-20, India’s real GDP has grown only 1.5%. In other words, it has expanded from Rs 145.16 trillion to Rs 147.36 trillion in two years. Period.
Another data point is the plummeting consumption levels which decelerated from 7.4% in Q3 FY22 to 1.8% in Q4 FY22. Compared to FY20, consumption inched up by just 1.5% in FY22.
Meanwhile, rural consumption refuses to take off meaningfully given the inflationary pressures – as evident in rocketing prices of fuel, foodgrains, fertilisers and edible oils – that have been eroding the purchasing power of the common man.
There are some silver linings as well:
Data released June 1 showed goods and services tax (GST) collections topped ₹1.4 lakh crore for the third month running in May. GST collections in April hit an all-time high of Rs1.67 lakh crores on the back of better compliance and faster economic recovery. However, read more compliance and push for higher tax responsible for the increase as evident from below chart.
The manufacturing purchasing managers' index (PMI) remained firmly in the growth zone at 54.6 in that month. Automakers reported robust passenger car and commercial vehicle sales for May despite parts shortages and supply issues. Railway freight loading rose 15% in the same month to 131.7 million tonnes against 114.9 million tonnes in the year earlier.
Core sector growth hit a six-month high of 8.4% in April, data released showed, while credit growth was up 11.9% year-on-year as of May.
The country's merchandise exports rose 21.1% year-on-year to $23.7 billion in the first three weeks of May. Exports breached USD 400 billion mark for the first time in FY 22. Amid high commodity prices and the ongoing Russia-Ukraine war, India’s exports swelled by 24% in April to USD 38 billion, the third highest level ever, led by petroleum products, electronic goods and chemicals. However, a higher increase in imports of 27% at USD 58 billion left a much wider trade deficit during the month. Also refer the below chart in terms of exports as %age of GDP, which is still below historical levels.
But, there are lot of risks lying ahead: Inflation is elevated and monetary tightening is underway to control the price rise. Crude prices are advancing again with Brent at $118 a barrel and commodity prices remain elevated. Global growth is slowing in response to monetary tightening and many countries are facing a capital exodus or balance of payments crisis. Easing of Covid restrictions in China should ease supply issues going ahead.
Inflation based on consumer price index (CPI) has increased consistently for past 7 months, reaching almost 8-year high of 7.8% in April 22, mainly led by food & fuel price increases.
Factory activity remains lacklustre with Index of Industrial Production (IIP) of March at dismal 1.9%.
Rupee plunges to lifetime low against USD at 77.60. A rise in the CAD, along with monetary policy tightening across the globe, dollar strength and general risk aversion towards EM assets is expected to impart a depreciating bias to Rupee.
Sensex down to 9-month low! Indian stock markets have in recent weeks been roiled by fears of sky-high inflation, a surprise interest rate hike, foreign fund outflows and a mixed set of corporate results.
A slowdown in global growth, higher commodity prices and risk aversion in global capital markets had exposed India's economy to downside risks.
While the worst of the Covid-19 pandemic seems to be behind us, we are yet to make any considerable progress compared to pre-pandemic levels. In that context, a new set of challenges, particularly inflation, are looming on the horizon. How the government deals with them will determine how fast we can move past the scars of the pandemic.
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