Most similar economic information can be considered news – and with news there is often a lot of noise. Therefore, it is necessary to extract valuable information in the form of the signal contained in the latest economic figures. Basically, there are four of these indicators that interest me immediately.
Let’s start with the Indian manufacturing sector where we have the S&P Global India Manufacturing Purchasing Managers’ Index. This index is seasonally adjusted and for July it was 56.4 while it was 56.2 for August. The report further highlights that production volumes have been supported by a recovery in exports and optimistic projections for the coming year.
The level of optimism was also the highest in six years. Since businesses have their skin in the game, their expectations guide their decisions and they have appropriate incentives to behave rationally than most other economic agents. Perhaps this is why their optimism is also reflected in their decisions to invest in capacity expansion, as credit utilization has been decent. Overall, growth in the manufacturing sector looks decent.
Another indicator that should be used to corroborate this would be the Periodic Quarterly Labor Force Survey (PLFS).
The unemployment rate in the economy fell to 7.6% between April and June 2022 and it is the lowest since the start of the survey in the first quarter of 2018. Another indicator of the labor market that is often of interest is labor force participation rate (LFPR). , which is defined as the percentage of people who are working or looking for work in the population. The LFPR has steadily increased over the past few quarters and was 47.5% during the April to June 2022 round of the survey.
Now let’s move on to a high-frequency indicator that gives us an idea of consumption. TPS collections in August stood at Rs 1.44 lakh crore – the sixth consecutive month for a raking above Rs 1.4 lakh crore. The rigorous effort underway to combat tax evasion may explain, at the margin, the improvement in tax collection. However, the third part of the puzzle is explained by higher levels of consumption and economic activity. Some claim it is also because of higher levels of inflation. However, simple increases in inflation will not increase GST collections, as higher prices can suppress consumption. In addition, retail consumer price inflation has been well below the recent implicit GDP deflator.
Now let’s get to the elephant in the room, which is the recent GDP printout for the first quarter of FY23. The economy grew 13.5%, which was below expectations for an impression above 15% for the first quarter. However, the implicit deflator of real GDP – ie nominal GDP – was 13.2%. This is larger than expected by many, but is the result of the methodology used to arrive at the national income estimates.
High crude prices certainly added to the deflator. India’s first quarter nominal GDP came in at 26.7%, which is exceptionally good and the discrepancy between the real GDP projections and the actual data is largely explained by the underestimation of the GDP deflator.
It is also important to add the context in which these figures were published. India’s impression in the first quarter was most certainly accompanied by a synchronized global deceleration in growth rates. China’s growth in comparison over the same period was 0.4%.
In addition, several central banks, including the Reserve Bank of India’s Monetary Policy Committee, have started a process of raising interest rates to slow growth and rein in inflationary impulses. In this context and given the ongoing growth recovery process, India’s first quarter should please our decision-makers.
There is a sense of optimism around India’s growth story – and this optimism is rooted in political stability, consistent policy reforms and a continued effort to make things better, even if at times the pace of improvement seems slow.
However, at least in the short term we need to revise our expectations for the current fiscal year given the global economic environment and the fact that the RBI’s rate hikes are aimed at controlling inflation by slowing growth. An annual growth rate of 7% would be A+, but 6.8% would be no less than an A and since growth is often noted on a curve, a 6.8% could invariably end up being A+.
(The author is a New York-based economist)