India’s macroeconomic indicators are giving mixed signals. The situation at the micro level is alarming. The economy is stuck in a loop and people are clinging on to the hope of a better future. Covid-19 pandemic has eroded personal and corporate wealth and majority of the country is surviving on past savings or debt. Either ways, current state of affairs have become untenable and will have a bearing on retirement planning.
Thankfully, not everyone is in financial stress, though everyone’s life has become monotonous. Let us try to understand the state of affairs of Indian economy with the help of key indicators.
Consumer Price Index
The headline CPI inflation eased marginally in the month of June. To make sense of the inflation numbers we have to pay attention to the minute details. Even if the overall inflation registered a dip, urban inflation rose by 46 basis points (BPS) (Every percentage has 100 basis points). Maharashtra (13.18%) and Uttar Pradesh (12.37%), the only two states to have double-digit weightage, lead the rise of urban consumer price inflation.
Education and fuel costs were higher for June in both the urban and rural markets. Urban housing, which has weightage of 10.07% in CPI, registered biggest deduction in percentage terms over the previous month’s figure.
Food inflation as a whole rose by 14 BPS. Interestingly, rural food inflation shot up by 50 BPS, while urban food inflation came down by 55 BPS when compared with the figures from May. Prices of vegetables and eggs registered sharp increase; some of this increase has been attributed to rise in transportation cost due to persistent rise of fuel prices.
Goods and Services Tax
The gross GST revenue collected in the month of June 2021 was ₹92,849 crore. Prior to June, GST collection crossed ₹1 lakh crore mark for eight months in a row. The GST collection for June is related to the business transactions made during the month of May. In the last couple of months, most of the States/Union Territories were under either complete or partial lock down. The e-way bill data for the month of May shows that during the month, 3.99 crore e-way bills were generated as compared to 5.88 crore in the month of April, down by more than 30%.
Sentiment plays a big role in the economy. Purchasing decisions are influenced by two factors – present financial position and future prospects. Future is uncertain and this makes the decision-making process vulnerable to shocks. Lockdowns imposed to check the surge in new cases of Covid-19 are playing spoilsport in the recovery of mobility and travel sector.
On one hand, airline and hospitality industry are suffering due to curtailed discretionary travel, while on the other hand automobile sales have slowed down when compared with pre-Covid-19 figures. Auto industry has high hopes from a good monsoon and the upcoming festive season. The optimism has been kept under check by two factors – firstly, the expectation of third wave of Covid-19 infections some time in August/September, and secondly the continued global semi-conductor shortage is impacting demand – supply mismatch.
Foreign Portfolio Investment
June witnessed a reversal in the investment pattern of FPIs. Equity segment received bulk of the funds and turned positive after two successive months of net outflow. The debt segment has seen consistent selling from FPIs. Indian securities markets registered a net inflow of just under ₹13,000 crore from foreign investors during the month of June.
Manufacturing and Services
India’s manufacturing industry fell back into decline during June, as the intensification of the pandemic and strict containment measures negatively impacted demand. Falling new orders, business closures and the Covid-19 crisis triggered a reduction in output among Indian manufacturers. The decline was moderate when compared to the first half of 2020, but ended a ten-month sequence of growth. As per data released by IHS Markit India, PMI was 48.1 in June (May: 50.8); the seasonally adjusted PMI was below the critical no-change mark of 50.0 for the first time since July 2020.
Services firms endured further losses of new business and the reintroduction of containment measures restricted demand. New work intakes and output contracted at the fastest rates since July 2020, which prompted companies to reduce employment again.