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Friday, June 9, 2023

A Macro Economic view of Bharat for Q1 FY 2021-22

Manufacturing PMI – During April month, manufacturing PMI stands at 55.4 well above threshold of 50 indicating expansion of manufacturing activities as the lockdown restrictions were not as crippled as last year. The government had learnt some harsh lockdown lessons that it allowed industrial activities to continue this time.

In May, PMI had hit a 10-month low of 50.8 as most states imposed lockdown. Being higher than 50, this was still in expansion zone. This index further slipped to 48.1 in June month as there was a significant hit to sales and production. Job losses worsened the outlook and input costs compelled firms to hike selling prices to save on their margins.

Services PMI – In April month, services PMI stood at 54 well above threshold of 50 indicating foreign demand for services. In May, this index slipped to 46.4, the lowest since August 2020 because of strict lockdowns and prompting firms to cut jobs and declining business expectations.

Subsequently it dropped to 41.2 in June due to cautious consumer sentiment despite the easing of the lockdown in some states.

Consumer Price Index – Retail inflation eased to lowest in three months at 4.29% in April compared to 5.52% in March, led by fall in the prices of food items mainly vegetables. During May, CPI rose to 6.30% breaking out the RBI’s inflation targeting band of 4 – 6% however eased marginally in June at 6.26%, though still above the band.

The spread of pandemic and fresh curbs have led to supply chain disruptions impacting prices across segment. A pick-up in inflation is driven largely by adverse supply shocks and sector-specific demand-supply mismatches caused by the pandemic.

The food price index and consumer discretionary were lower at 2.02% and 3.49% in April versus March but fuel and light inflation had kicked off to 7.91% in April. Food price index, consumer discretionary and fuel and light surged significantly over May and June.

The price of eggs, edible oils, fruits and vegetables accelerated in double digits. Fuel inflation grew significantly at 12.7% in June as oil marketing companies continue to increase petrol and diesel prices.

Wholesale Price Index – The annual rate of inflation rose to 10.49% in April followed by 12.94% and 12.07% in May and June. Primary articles, fuel and power, and manufactured products are major groups of WPI. WPI is high due to low base effect and rise in crude oil prices, mineral oil and manufactured products. Inflation in primary articles, fuel and power and manufactured products spiked in April, shot up in May but moderated in June.

Index of Industrial Production – An index that tracks manufacturing activity in different sectors of economy. Mining, manufacturing, and electricity are the constituents of IIP. The industrial activity in manufacturing sector grew by 198% YoY in April 2021 over April 2020. The manufacturing activity also grew by 35% in May 2021 over May 2020. The cumulative growth of factory output in April-May 2021 stood at 68.8%.

Due to fresh curbs in May 2021, the indices for manufacturing and electricity dipped marginally due to low business activities and declining commercial demand.

Exports Growth – Even as domestic demand was weak, global demand across the developed markets led to sharp increase in export orders in April and this pushed manufacturing PMI for the month also. Many firms have been able to service those orders despite the lockdown in May and June.

The difference of exports and imports have left a deficit trade balance of US$ 6.93 billion, US$6.28 billion and US$ 2.34 billion over April-June quarter driven by surge in oil and gold imports.

Policy repo rates – The rise in global commodity prices have been witnessed when the inflationary pressures already exist in the country. This may weigh heavy on investor sentiments and makes difficult for RBI to maintain an accommodative stance of keeping policy repo rates at 4% in long run.

Foreign exchange reserves – Reserves have risen to US$609 billion being the highest ever and provides an import cover of almost 14.2 months. Covid-19 has brought large forex reserves from all emerging markets with a hope that pandemic is behind and many foreign investors have poured in money thereby leading to high market capitalisation of Bharat’s stock market.

USD-INR exchange rate is hovering in the range of 72 to 74. The volatility in exchange rate of INR from the starting year has been -8.07% and exhibited depreciation compared to dollar.

Unemployment rate this year has been the highest in May at 11.07% that marginally dipped to 9.17% in June. This is quite a worrisome matter for our economy and this was induced by fresh lockdown in May that led millions of people lose their jobs and also the migrants who once again wished to go back to their villages in the middle of pandemic to survive.

10 year bond yields in Bharat have been maintained at 6%. Lot of stimulus, abundant liquidity and government borrowing has led to higher inflationary pressures leading to higher bond yields.

Macro-Economic Tracker

Indicators April-21 May-21 June-21
Manufacturing PMI 55.4 50.8 48.1
Services PMI 54.0 46.4 41.2
Consumer Price Inflation (YoY %) 4.29 6.30 6.26
Food Price Index 2.02 5.01 5.15
Consumer discretionary 3.49 5.32 6.21
Fuel and Light 7.91 11.58 12.68
Wholesale Price Inflation (YoY %) 10.49 12.94 12.07
Primary articles 9.94 9.61 7.74
Fuel and Power 21.27 37.61 32.83
Manufactured Products 9.44 10.83 10.88
Index of Industrial Production (YoY %) NA 29.3 NA
Manufacturing 197.9 34.5 NA
Mining 36.3 23.3 NA
Electricity 38.5 7.5 NA
Exports (USD Bn) 51.79 32.27 49.85
Imports (USD Bn) 58.72 38.55 52.18
Balance of Trade (USD Bn) -6.93 -6.28 -2.34
Policy Repo Rate 4.00 4.00 4.00
Forex Reserves (USD Bn) 584.10 592.89 609
INR/USD rate 74.05 72.55 74.26
Unemployment rate (%) 7.97 11.90 9.17
10 Year Bond Yield (%) 6.03 6.02 6.05


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Criti Mahajan
Criti Mahajan
An MBA graduate in finance with 5 years of working experience in the financial services space. An enthusiastic research writer inclined towards understanding economics and policy making with an experience of diversified writing on professional platforms in economics. A self-starter, perseverant and an ardent learner.


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