Despite Global Slowdown, India's Economic Indicators Are On Track, Says CareEdge
CareEdge Ratings evaluates industry production, kharif farming, liquidity scenario, rupee performance and external debt in the report
Amid the global slowdown, all economic indicators are on track for India, said CareEdge Ratings in its ‘economic pathway’ report for July, analysing performance on different financial indicators. The report revealed that external debt, industrial production and rupee performance all are under check and balance
While talking about ongoing demand increase, the report stated that tractor sales increased to a seven-month high in May. Domestic PV sales remained largely unchanged in May compared to April. However, its year-on-year (YoY) growth witnessed some moderation. Still high inflation in select food items and elevated unemployment levels continue to pose a challenge for the demand recovery. As Centre for Monitoring Indian Economy (CMIE) reported that the unemployment rate increased to 9.2 per cent in June from 7 per cent in May.
Industrial activity is running healthy, as per the report. Core sector output grew by 6.5 per cent during April to May FY25 as against 4.9 per cent growth in the corresponding period last year. Electricity output recorded robust growth of 11.6 per cent due to higher demand amid heatwave conditions in several parts of the country. At the same time, the coal sector grew by 8.8 per cent year on year basis. But surprisingly Cement production was a drag on the core sector’s overall performance contracting by 0.6 per cent as against strong growth of 14 per cent last year.
The inflationary trend shows mixed reactions. CPI inflation moderated marginally to 4.75 per cent in May (Vs 4.8 per cent in April); Core inflation continued its downward trend, declining further to 3.1 per cent, marking a multi-year low. Whereas food inflation held steady at an elevated 7.9 per cent with inflation in vegetables and pulses staying in double-digit. But the good news is that Kharif sowing increased by 33 per cent YoY to 24 million hectares led by an increase in the sowing of pulses, oilseeds and cotton.
Reviewing the external health of the economy, the report finds it under control. In Q4 FY24, the current account recorded a surplus of 0.6 per cent of gross domestic product (GDP) marking the best performance in eleven quarters. In terms of capital flows, net foreign investment flows more than doubled to USD 54 billion in FY24. This was mainly on account of strong net FPI inflows at USD 44 billion (Vs net outflows of USD 5.2 billion in FY23) while net FDI inflows moderated sharply to USD 9.8 billion in FY24 from USD 28 billion last year.
Overall, the BoP recorded a surplus of USD 63.7 billion in FY24 Vs a deficit of USD 9.1 billion in FY23 aided by a higher capital account surplus and lower CAD. The report predicts about the health of BoP for FY 25. It predicts that the current account deficit (CAD) to be around 1 per cent of GDP in FY25 and BoP to remain in surplus.
Talking about the external debt scenario report finds it manageable. India’s external debt increased by USD 39.7 billion to USD 663.8 billion in FY24. However, as a ratio of GDP, it dipped marginally to 18.7 per cent, the lowest in thirteen years. Short-term debt was seen at 18.5 per cent of the total external debt whereas short-term debt (by residual maturity) was seen at 42.9%. However, residual short-term debt was at 44 per cent of the foreign exchange reserves keeping India’s external vulnerabilities limited.
The agency is expecting the economy will grow by 7 per cent in FY 25. The consumer price index (CPI) inflation would be around 4.8 per cent while CAD might be around 1 per cent.
