Indian economic recovery stabilizes, but remains K-shaped | Latest India News

What is the state of the Indian economy right now? When the Office for National Statistics (ONS) releases GDP statistics for the June quarter at the end of this month, the picture will become clearer. However, various high-frequency indicators, including those from RBI’s recently released forward-looking surveys, can give an overall picture of the state of the Indian economy. Here are three charts that explain this in detail.

Growth prospects seem stable

“Domestic economic activity remains resilient,” the RBI’s Monetary Policy Committee (MPC) said in its resolution issued last week. Monthly PMIs for manufacturing and services support MPC’s conclusion. Both the manufacturing PMI and the services PMI have remained above the critical 50 threshold – signifying an expansion in economic activity from last month – for the past 12 months. Certainly, MPC, in its growth projections, noted that there continues to be downside risks . However, what matters is that MPC did not lower its growth projections between the June meeting and the August meeting. This is despite the fact that the IMF’s August update on the global economy made a downward adjustment of 80 basis points – one basis point equals one hundredth of a point of percentage – compared to its April forecast of 8.2%.

The most important question concerns the growth trajectory

While there is little doubt that an economic recovery is underway, the more important question is whether the Indian economy can once again enter a high and sustainable growth trajectory. Mere statistical comparisons are of little use here, as projections of future growth rate stem from a pre-pandemic slowdown and contraction due to pandemic disruption. One way to answer this question is to look at the state of the investment cycle, which it is safe to say will only begin to recover when industries find that existing capacity is proving insufficient to meet demand. New investment announcements in the manufacturing sector can provide a basis for this; the Center for Monitoring Indian Economy (CMIE) database gives these data as a percentage of quarterly gross value added in the manufacturing sector. Examining the relative, not absolute, trend of new capex announcements – they are largely an indicator of sentiment regarding future growth – is a better measure than absolute capex figures, as the latter may show improvement even if their relative size in relation to the economy is small. The data shows that new capital spending announcements as a share of manufacturing have risen alongside the upward trend in capacity utilization, as seen in the RBI survey. This suggests that the investment cycle may finally be showing early signs of recovery.

But the consumer confidence survey continues to point to an uneven recovery

This may seem counter-intuitive as key consumer confidence numbers continue to show improvement. The current situation index (CSI) – this is 100 added to the average of the net responses of various aspects on which data is collected – stood at 77.3 in the July 2022 cycle, which is closest to March 2020 value since pandemic hit. However, there are good reasons to believe that the overall consumer confidence figures are showing a positive bias due to a favorable base effect. A detailed examination of scores on current perception of income may explain this. The current perception survey asks respondents if their income has increased, decreased or stayed the same compared to a year ago. Net current perception is simply the difference between the share of respondents who report an improvement and those who report a worsening. What is important to keep in mind is that for respondents in the July cycle, the benchmark for comparison with current income levels is the value of July 2021, when incomes were likely below the level before the pandemic. This means that respondents who report a level of income similar to last year are actually worse off economically. A comparison of the three responses (increase, decrease and stable) shows that there was a large increase in the share of respondents who reported similar levels of income and an almost equal decrease in the share of respondents who reported a decrease income levels. . The proportion of respondents who reported an increase in their income levels compared to a year ago is actually very low. This suggests that the incomes of many people in urban areas – the CCS is being conducted in 13 major cities – are in fact stuck at levels where they were a year ago. Because there is more than enough evidence to show that overall GDP and formal sector activity have increased significantly over this period – this is suggested by indicators such as the PMI – this supports the theory that the post-pandemic recovery was driven by only part of the overall economy. This matches the narrative of a K-shaped recovery.