Mint Macro Tracker: Financial system Turns For The Higher

The Indian economy posted modest gains in March despite the impact from Russia’s invasion of Ukraine, showed the latest update to Mint’s monthly macro tracker.

During the month, seven of the 16 high-frequency indicators considered in the tracker were in the green zone, marking its best performance since last September. Seven were in the red, and only two were in the amber zone, or in line with their five-year average trend.

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Launched in October 2018, Mint’s macro tracker provides a comprehensive monthly report on the state of the economy, based on trends in 16 high-frequency indicators across four segments: consumer economy, producer economy, external sector, and ease of living. Its color coding—red, green and amber—is based on the performance relative to the five-year average trend.

In a report released on 8 April, Nomura noted recovery in contact-intensive activities as the pandemic scare subsided and mobility rose rapidly. However, the report said global supply chain disruptions and weaker global growth prospects as a result of the war in Ukraine could weigh on the country’s economic recovery.

The consumer economy segment of the tracker performed the best in three years, with three indicators above their five-year average trend. However, the gain was primarily because the tracker reports annualized changes since the same month two years ago to avoid the base effect of the first lockdown. Since the economy was already slowing before the lockdown in March 2020, some base effect has bumped up the numbers in the tracker in March this year.

Hence, absolute numbers could offer a better measure of progress, but recovery was clear here too. The aviation sector recovered from the impact of the third wave and returned to pre-pandemic levels, carrying 10.7 million passengers during the month, up nearly 40% from February. Domestic passenger car sales were at their highest level in a year.

The producer economy performed strongly as well, with three indicators in green and one in amber, marking its best show in over a year. Service sector growth accelerated as eased following the third wave. However, inflation worries continued to curb business optimism as input prices climbed at the fastest pace in 11 years. The composite Purchasing Managers’ Index rose from 53.5 in February to 54.3 in March.

Rail freight traffic of major commodities reached the highest level since the tracker began collecting data for the indicator.

Both imports and exports rose to record highs in March, while the trade deficit widened even further. Exports surpassed $40 billion for the first time, owing to strong performance in petroleum, engineering, and leather industries. Exports in labour-intensive sectors reached a four-year high and increased considerably when compared to the same period two years ago, as base effects kicked in.

In March, ease of living continued to be the worst performer of all segments in the tracker. Food price increases drove headline inflation to its highest level in nearly a year-and-a-half. As a result of inflation exceeding the Reserve Bank of India’s upper-tolerance limit, along with expectations of fuel prices to be high in April-June, most economists now expect a repo rate hike at the June meeting of the central bank. Core inflation, which excludes food and fuel, remained sticky, reaching its highest level since mid-2014. The labor participation rate, as measured by the Center for Monitoring Indian Economy (CMIE) survey, was at 39.5%, marginally down from February.

As the Indian economy recovers from the impact of the pandemic, it faces challenges from surging global commodity prices and supply-chain disruptions, prompting multiple organizations, including RBI and IMF, to lower the country’s growth forecast for this fiscal. While some high-frequency indicators have shown such changes, the tracker will reflect the flux seen in April only when it is updated next in May.

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