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  • Raghav Sand

The Indian Economy: First Five Months of 2023

The Indian economy has been hailed as a bright spot in an otherwise gloomy world. India has weathered the economic disruption caused by external factors with resilience. All the major economies in the world are facing high rates of inflation. We are starting to see inflation cool down and this has prompted central bankers from major economies to pause the hike in key policy rates. Global growth rates are falling sharply, and this is adversely affecting India’s services and merchandise exports.

Goods and Services Tax

India is heavily reliant on the consumption-based Goods and Services Tax (GST). As per data released by the Ministry of Finance, the gross GST collection for the first five months of 2023 stood at ₹8,09,746 crore - a 11.76% increase over the same period in 2022. Consumption is being driven by spending from both the government and private sector, with the former taking the lead. A healthy consumption pattern has been a boost for the corporates and the exchequer.

GST Collection India January to May 2023
Data source: Ministry of Finance, Government of India

Falling Exports and Rising Inventory

Indian factories have an inventory problem. As per the S&P Global report, published in the first week of June, better supply chain and increase in inputs buying boosted production and inventory growth. The report also stated that May was the 23rd consecutive month of growth in manufacturing.

The Ministry of Statistics and Programme Implementation (MOSPI), Government in India, has announced that stocks of goods held by firms in India has increased by Rupees 35,954 crores (359.54 billion) in the first quarter of 2023. On top of this, data from the Ministry of Commerce reveals that exports are down by 9.44 percent for the first four months of 2023 as compared to the same period last year.

India Economy Inflation

Key policy rate intervention from the Reserve Bank of India (RBI) like most of its peers in the developed and Emerging Market Economies (EMEs), have been successful in bringing down the headline inflation over the past two quarters. On the flipside, the high cost of borrowing has hindered credit growth. The RBI will wait for some time to take a call on reducing the prevailing high interest rates.

As per inflation data for the month of May, the Cnsumer Price Index stood at 4.25% and this cooling off from the highs of last year has given a much needed breather to corporates and households. Notable reductions were recorded in the oils and fats and vegetables categories. On the other hand, prices of cereals and spices continue to make a dent in household budgets.

India Inflation Data May 2023
Data source: Ministry of Finance, Government of India

Foreign Portfolio Investment and NIFTY 50

The Indian securities markets have performed well over the first five months of 2023. India’ domestic investment and consumption cycle has attracted justifiable interest from Foreign Portfolio Investment (FPI). As per the data available on the website of National Stock Exchange (NSE), we can see a direct relation between FPI investment and rise in NIFTY-50. The domestic institutional investors and Mutual Funds (MF) have always kept some dry powder to consolidate their portfolios. (See chart below)

FPI and NIFTY 50: January to May 2023
Data source: National Stock Exchange of India

Optimism and Resilience

While monetary policy is kept tight to manage excessive inflation, the World Bank predicts that the global economy, which grew by 3.1 percent last year, will only grow by 2.1 percent in 2023 before making a slight rebound in 2024 to reach 2.4 percent. India's projected growth for FY 2024 has been reduced to 6.3%.

The tight financial conditions worldwide and the weak external demand are expected to impede the growth of emerging markets and developing economies. As demand drops and commodity prices flatten, inflation is anticipated to gradually decrease if longer-term inflation expectations remain unchanged. The world economy needs some time to get back on its feet after tumultuous last three years and the mantra for it should be to engage and not enrage.

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