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Thursday, December 2, 2021

Macroeconomic Overview of Bharatiya Economy for Q2 FY21

The macroeconomic overview is presented with the economic indicators in the dashboard focusing on the performance of Bharatiya economy w.r.t its economic output, export growth, import cover, inflation trend, unemployment, foreign exchange rate, and forex reserves for July-Sept Quarter FY2021-22.

Macro-Economic Dashboard of Bharatiya Economy for Q2FY21

IndicatorsJuly-21Aug-21Sept-21
Manufacturing PMI55.352.353.7
Services PMI45.456.755.2
Consumer Price Inflation (YoY %)5.595.304.35
Food Price Index3.963.110.68
Consumer discretionary6.466.847.16
Fuel and Light12.3812.9513.63
Wholesale Price Inflation (YoY %)11.1611.3910.66
Primary articles5.726.24.1
Fuel and Power26.0226.0924.81
Manufactured Products11.211.3911.41
Index of Industrial Production (YoY %)11.511.9NA
IIP Manufacturing19.523.6NA
IIP Mining10.59.7NA
IIP Electricity11.116NA
Exports (USD Bn)54.9552.2054.06
Imports (USD Bn)57.2958.5768.49
Balance of Trade (USD Bn)-2.34-6.37-14.43
Policy Repo Rate4.004.004.00
Forex Reserves (USD Bn)611.14616.89639.64
INR/USD rate74.347374.34
Unemployment rate (%)6.968.326.86
10 Year Bond Yield (%)6.206.226.22
Source: MOSPI, DPIIT, RBI

Let’s illuminate above economic indicators with a spotlight –

The manufacturing PMI has significantly climbed up in July’21 to 55.3 from 48.1 in June’21. In August’21, the PMI seem to have dropped to 52.3 yet remains in expansion zone, mainly due to the shortage of raw materials among suppliers and lack of container availability that lengthened average lead times elevating cost pressures and the companies could pass on their cost burden to clients. However, a slight recovery in PMI for Sept’21 is observed at 53.7.

The services PMI climbed up to 45.4 in July’21 from 41.2 in June’21. Yet the business sentiment was weak in services due to pandemic. In Aug’21, the PMI showed significant rise in services sector at 56.7 riding over the manufacturing sector for the month. As the vaccination access improved and pandemic receded, the business sentiment was pushed upwards. Services PMI in Sept’21 continued to expand as demand improved and output rose.

The Consumer price inflation has softened in July (5.59%), August (5.30%) and Sept’21 (4.35%) vs May (6.30%) and June’21 (6.26%). Inflation has declined in rural and urban areas in Q2FY21. The food prices have also stood lower at 0.68% in Sept’21 vs 3.11% in Aug’21.

The Wholesale price index rose to 11.39% in Aug’21 vs 11.16% in July’21 however it softened to 10.66% in Sept’21. The primary articles and fuel and power inflation also rose in Aug’21 at 6.2% and 26.09% vs July’21 but softened in Sept’21 to 4.1% and 24.81%.

Index of Industrial Production (IIP) index shows the growth rates in different industry groups of the economy like mining, manufacturing, and electricity. The IIP YoY% in July’21 is clearly visible at 11.5% vs 11.9% in Aug’21. There is a progressive growth in manufacturing and electricity in Aug’21 compared to July’21 while mining shows a marginal decline in growth rate in Aug’21.

There is significant surge in exports at US$54.95 bn in July’21 vs US$51.79 bn in June’21. Imports stood at US$57.29 bn in July’21 vs US$58.72 bn in June’21 Over the span of July-Sept’21, the imports have increased more than the exports giving out a surge in trade balance of -14.43% in Sept’21.

Policy repo rate has been maintained at 4% and kept unchanged since Q1FY21.

Foreign exchange reserves have surged from US$611 bn in July’21 to US$639.64 bn in Sept’21 primarily due to increase in foreign currency assets, a major component of forex reserves. The FCAs increased by $950 million to $577.951 billion, according to RBI.

USD-INR exchange rate has been hovering around 73-74 in Q2FY21, INR exhibiting a slight depreciation to dollar in Sept’21.

Unemployment rate stands at 6.96% in July’21 and seen worse soaring to 8.32% in Aug’21 but eased again to 6.86% in Sept’21. The labour participation rate increased from 40.5% to 40.7% and employment rate increased from 37.2% to 37.9% in Sept’21. Employment in Sept’21 is estimated at 406.2 million slightly lower than the pre-Covid employment of 406.7 million in Sept’19. The rise is due to the increased in salaried jobs. Daily wage workers and small traders are getting employed due to revival in economic activity as pandemic is seen to have been receding. Migration of farmers are back to construction sites.

10 year bond yields have risen in Q2FY21 at 6.2% vs Q1FY21 at 6% as RBI is gearing up for taper tantrum by gradually suspending its government securities acquisition programme (G-SAP).

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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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