The economy is on a rebound
High-frequency indicators show the formal economy is fine, but vulnerabilities remain
The Goods and Services Tax (GST) collection of almost ₹1.5 lakh crore in July, and a purchase manager’s index (PMI) of 56.4 for manufacturing (an eight-month high) indicate that India’s economy, despite fears to the contrary, has been remarkably resilient. With early signs of inflation having peaked being borne out in the PMI data released Monday, the country’s financial policymakers could not have sought a better backdrop to the meeting of the monetary policy committee (MPC) of the Reserve Bank of India that starts Wednesday. It is certain that there will be another increase in the policy rate – but there’s already talk among analysts that this could be a modest one, and that the tone of the central bank’s commentary could soften. Indeed, if high-frequency data (such as the two discussed above) are any indication, the formal economy is doing well – and RBI and North Block (which houses the finance ministry) would do well to keep it that way. After all, the macro environment ahead of the August meeting of MPC is very different from that in June, ahead of the previous scheduled meeting, and May, before an unscheduled one – together, the two meetings saw a 0.9 percentage point increase in the policy rate. Now, with talk of a global recession in the air – the economy of the United States, India’s largest trading partner, is technically in recession – RBI will want to ensure that it does not do anything that compromises the Indian economy’s growth.
That growth was evident in GST collection for July (for transactions in the month of June), a 28% increase over the corresponding period last year, and the fifth straight month of collections in excess of Rs 1.4 lakh crore. As the finance ministry pointed out, GST revenue in the first four months of 2022-23 is 35% higher than that in the corresponding period last year. It is still early in the financial year, but some analysts expect GST collections for 2022-23 to exceed budget estimates.
This is not to gloss over vulnerabilities, and there are a few. The price of crude oil is one, although it is off its June peaks. A patchy monsoon, especially in the rice-growing parts of the country, in the East, is another. The performance of the informal economy, a third. There is also the issue of consumer sentiment, which continues to tag according to RBI’s survey (the latest one that comes out this week will be closely watched). But, in balance, the country’s economic prospects look a lot brighter than they did just a month ago.