- At the time of global uncertainty and rising inflation, two developments in India give a fair idea about the state of Indian economy.
- These two developments are – release of India’s trade data for July, unveiling of RBI’s latest monetary policy review.
What’s in Today’s Article:
- India’s trade data
- RBI’s Monetary Policy Review
India’s trade data
- Trade Deficit
- Barring April, in each of the last three months — May, June and July — India’s trade deficit hit an all-time high in each passing month.
- Trade deficit is the amount by which the cost of a country's imports exceeds the value of its exports.
- The trade deficit has risen so sharply that just in the first four months of the current financial year, it is already equal to the full-year trade deficit of 2020-21 and more than half of the trade deficit in 2021-22.
- Many analysts now expect India’s Current Account Deficit (CAD) to balloon from 1.2% of GDP in 2021-22 to around 4% (of the GDP) in 2022-23.
- If the value of goods and services we import exceeds the value of those we export, then difference in the two values is CAD.
- Rupee has lost value against the US dollar
- The spike in the trade deficit has been one of the key reasons why the rupee has lost value against the US dollar.
RBI Monetary Policy Review
- Interest rate hiked
- The RBI has reprioritised its focus from boosting growth to containing inflation. This is evident from the recent interest rate hikes.
- Since May 2022, repo rates have gone up by 140 bps (or 1.4 percentage points).
- At 5.4%, already the repo rate is at the pre-pandemic level.
- Growth pegged at 7.2%
- Although, analysts believe that the recent hike in interest rates will create a drag on India’s economic recovery.
- However, RBI still expects India to grow at 7.2% in the current year.
- The RBI also released the results of seven surveys, conducted by RBI, which speaks about the state of the Indian economy.
- Consumer Confidence Survey (CCS)
- Consumer confidence for the May 2022 period has been consistently improving since July 2021.
- The sentiments on the key parameters like employment and household income improved further, though they remained in pessimistic zone.
- Inflation Expectations Survey (IES) - It tracks people’s expectations of inflation.
- It shows that households’ inflation perception for the current period has moderated by 80 bps to 9.3% in the latest survey round.
- Order Books, Inventories and Capacity Utilisation Survey (OBICUS)
- The survey provided a snapshot of demand conditions in India’s manufacturing sector from January to March 2022.
- The survey showed a low level of Capacity Utilisation. It implies that manufacturing firms can meet the existing demand without needing to boost production.
- This, in turn, has negative implications for job creation and the chances for private sector investments in the economy.
- However, the CU is well above the pre-pandemic level — suggesting India’s aggregate demand is recovering steadily.
- Industrial Outlook Survey (IOS)
- This survey tries to track the sentiments of the businessmen and businesswomen.
- It highlighted that businesses were optimistic in Q1, although not as much as they were in the recent past.
- But, they do expect things to improve as the months roll by.
- Services and Infrastructure Outlook Survey (SIOS)
- It does a qualitative assessment of how Indian companies in the services and infrastructure sectors view the current situation and the future prospects.
- It showed that the companies in the services space are far more optimistic than the companies in the infrastructure sector.
- But the important thing is that the net responses — that is, the difference between the percentage of respondents reporting optimism and those reporting pessimism — is positive for both sectors.
- Bank Lending Survey (BLS)
- It captures the mood — qualitative assessment and expectations — of major scheduled commercial banks (SCBs) on credit parameters (viz., loan demand, terms & conditions of loans) for major economic sectors.
- The survey found that the bankers’ assessment of loan demand in Q1: 2022-23 remained positive for all major sectors.
- Survey of Professional Forecasters (SPF)
- This is a survey of professional forecasters (outside the RBI) on key macroeconomic indicators such as GDP growth rate and inflation rate in the current year and the next financial year.
- SPF highlights that GDP growth will range between 7%-7.4%, the second most probable outcome is that the growth rate will decelerate to 6.5%-6.9% range.