Week in Numbers: Tracking India’s Economic Pulse

The HSBC Flash PMI data showed the weakest expansions in private sector output and sales since early 2022. The HSBC Flash India PMI Composite Output Index fell to a 52-month low of 54.3 in July from 57.1 a month earlier. This marked the sharpest sequential decline in the index in 46 months. The HSBC Flash Services PMI dropped to a 53-month low of 53.1 in July from 57.4 in June, while the HSBC Flash Manufacturing PMI eased to a four-month low of 53.9 from 54.2 a month earlier.

Growth was hampered by increasingly challenging market conditions, competitive pressures, order cancellations, fewer client enquiries, and shortages of key raw materials. Although new orders continued to rise, the pace of expansion slowed to its weakest in nearly four-and-a-half years and remained moderate by historical standards.

The moderation in the growth of both new orders and output was concentrated in India's services sector, where the pace of expansion retreated sharply from June to the weakest level in 53 months. In contrast, the manufacturing industry regained some of the momentum it had lost previously.

One area where both sectors moved in tandem was exports, with growth accelerating at both manufacturing firms and service providers. Manufacturers outperformed the services sector, with the respective seasonally adjusted index rising by nearly four points. At the composite level, the latest increase in international sales was the strongest since March.

Flash PMI readings tend to overstate the final readings. Over the past 14 months, the flash composite index has, on average, been 0.4 points higher than the final reading.

India recorded a net foreign direct investment outflow of $74 million in May, compared with a net inflow of $6.58 billion in April. Gross FDI inflows fell to $6.07 billion in May from a 67-month high of $15.29 billion in April. A year ago, net and gross FDI inflows were $882 million and $7.85 billion, respectively.

FDI repatriation fell marginally to $3.70 billion in May from $3.90 billion a month earlier, while overseas investments by Indians declined to $2.44 billion from $4.82 billion.

Overall foreign investment flows recorded a net outflow of $4.82 billion in May, compared with an outflow of $680 million in April, as net portfolio investment recorded an outflow of $4.75 billion in May, compared with a net outflow of $7.26 billion in April.

Net FDI inflows in April-May came in at $6.50 billion, compared with $2.47 billion a year ago. Gross FDI inflows in April-May rose to $21.36 billion from $17.11 billion a year ago.

 

Growth in output of the nine core industries accelerated to a five-month high in June, mainly due to a sharp rise in iron ore output, which was included in the revised Index of Core Industries. Output across the nine core industries – coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, electricity, and iron ore – increased to 5.0% year-on-year in June from 3.2% in May.

The government has introduced a new Index of Core Industries, adding iron ore production to the existing eight. The rise in growth of core industries was primarily on account of the sharp rise in iron ore production, which jumped 43.9% in June. Excluding iron ore, the growth in core industries would have been 3.1% in June, compared with 2.3% a month earlier.

Domestic air passenger traffic contracted 1.0% year-on-year to 13.46 million in June, as the war in West Asia and higher airfares resulting from a sharp rise in crude oil prices continued to weigh on demand. This was the third year-on-year decline in domestic passenger traffic in the past four months. In absolute terms, traffic in June was the lowest in nine months. IndiGo, which accounts for about 65% of the domestic market, carried 8.92 million passengers in June, up 1.7% from a year ago. Passenger traffic for the Air India Group declined 12.7% year-on-year to 3.22 million.

Renewable energy generation, excluding large hydroelectric projects, rose 24.7% year-on-year to 36.99 billion units in June, driven by a 57.1% jump in solar energy output to 20.31 billion units. Wind generation increased 2.5% to 15.26 billion units. Electricity generation from large hydro projects contracted 20.3% to 13.36 billion units. Including large hydroelectric projects, renewable energy generation rose 8.4% to 50.35 billion units in June.

Total electricity generation in June, including thermal and nuclear sources, increased 11.3% to 179.12 billion units. Renewable sources, including large hydroelectric projects, accounted for 28.1% of total electricity generation in June.

The rupee’s real effective exchange rate rose in June, driven by its appreciation in nominal terms and higher domestic inflation than that of India’s major trading partners. The 40-currency trade-weighted real effective exchange rate index rose to 91.26 from a 13-year low of 89.21 in May. This was the first increase in the real effective exchange rate after six consecutive months of decline. The data indicate that the rupee remains undervalued relative to the currencies of its major trading partners. The Indian rupee appreciated 0.4% against the US dollar in June following an interim ceasefire agreement between the US and Iran and a sharp fall in crude oil prices.

India’s foreign exchange reserves rose to a six-week high as inflows under the Reserve Bank of India’s measures to attract foreign exchange began to materialise. The reserves increased by $1.08 billion to $676.24 billion in the week ended July 17. Foreign currency assets rose by $4.55 billion to $551.06 billion, while gold reserves declined by $3.48 billion to $101.75 billion. According to the RBI, as of July 17, the measures had attracted inflows of $20.72 billion, including through the concessional forex swap facility for public sector units raising external commercial borrowings and the facility under which the RBI covers hedging costs for banks mobilising foreign currency non-resident deposits.

 

Rice and wheat stocks with the government were at near-record highs as of July 1, providing a cushion against a lower foodgrain production due to the weak southwest monsoon. Total foodgrain stocks, including unmilled paddy, stood at 118.54 million tonnes, the second highest on record. Rice stocks were at 40.31 million tonnes, the highest on record, while wheat stocks stood at 52.27 million tonnes, the highest July 1 level in five years. The government held 38.75 million tonnes of unmilled paddy, equivalent to about 25.96 million tonnes of rice. High stock levels will help the government curb food price increases in the event of lower production.

 

 

Reservoir storage increased marginally but remained sharply below historical trends. As of July 23, live storage in reservoirs stood at 70.43 billion cubic metres, up 7.18 billion cubic metres from a week earlier. Live storage accounted for 38% of total capacity. However, the storage level was 36% lower than a year ago and 7% below the 10-year average. Reservoir storage levels typically begin rising in June.

 

The southwest monsoon rainfall improved over the past five days, narrowing the overall deficit. As of July 24, cumulative rainfall over the country was 319.2 millimetres, 84% of the long-period average. Of the country’s four regions, rainfall was 68% of the long-period average over east and northeast India, 73% over the south peninsula, 93% over northwest India, and 96% over central India.

The southwest monsoon rainfall was 63% of the long-period average in June and 100% of the long-period average so far in July.

Kharif sowing continued to lag as southwest monsoon rainfall remained deficient. The total area sown under kharif crops fell 4.7% year-on-year to 78.74 million hectares as of July 24. Rice acreage, which typically accounts for about one-third of the total kharif cropped area, declined 2.6% to 23.44 million hectares. Sowing of pulses fell 7.5% to 8.46 million hectares, while oilseed acreage fell 2.1% to 16.35 million hectares. Sugarcane sowing, which is complete, rose 1.5% to 5.76 million hectares, while cotton area declined 3.9% to 9.87 million hectares. The area covered so far accounted for 71% of the normal kharif area of 110.45 million hectares.

 

Coming up

• July 28: Index of Industrial Production for June
• July 31: Government finances for April-May
• August 1: GST collections for July
• August 3: HSBC India Manufacturing PMI for July

Tailpiece
India attracted inflows of $20.72 billion between June 8 and July 17 under the RBI’s measures to boost foreign exchange inflows. However, the inflows have yet to result in a perceptible increase in the banking system liquidity.