Few interesting findings from the RBI’s June 2023 bulletin.
India’s economy performed well in the last quarter (Q4) of 2022-23, with a real GDP growth rate of 6.1%. This growth rate was the highest among major global economies, and consumer price inflation (CPI) in India decreased to a 25-month low of 4.3% in May 2023.
The global composite Purchasing Managers’ Index (PMI), which measures business activity, increased to 54.4 in May 2023. This indicates that economic conditions improved globally during that month.
Global commodity prices, crude oil and gold prices in May and June 2023:
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Global commodity prices dropped significantly in May due to concerns about a possible recession in certain advanced economies.
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The Food and Agriculture Organization’s food price index decreased by 21.4% during this time.
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Crude oil prices moderated, averaging US$75.7 per barrel in May compared to US$84.1 per barrel in April, mainly due to reduced demand.
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Crude oil prices fell by 1.5% on June 14 after the Federal Reserve hinted at the possibility of further interest rate hikes due to a stronger-than-expected economy and a slower decline in inflation.
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Gold prices, which were initially rose by the banking crisis in the US and Europe, saw a slight decline in May as risks to the banking system subsided.
Inflation and central bank policies:
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Inflation eased across most economies in May. In the US, consumer inflation decreased for the 11th consecutive month, reaching 4%YOY. However, inflation based on the US personal consumption expenditure (PCE) index slightly increased to 4.4% in April from 4.2% in March.
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Inflation in the UK remained unchanged at 8.7% in May. In Japan, CPI (excluding fresh food) inflation rose to 3.5% in April, up from 3.3% since February 2023. In the Euro area, inflation moderated to 6.1% in May, its lowest level since February 2022.
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Core inflation, which excludes volatile components, remained persistently high due to services inflation and the expectation of sustained strong wage growth.
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The Federal Open Market Committee (FOMC) maintained the policy rate unchanged in its latest meeting on June 14. This decision allows the committee to gather more information and assess its implications before making any adjustments to monetary policy.
Transportation activity rose with higher E-way bill volumes and toll collections exceeding 300 million in volume, totaling ₹54 billion. FASTag adoption reached an impressive 97%.
Automobile sales and petroleum product consumption:
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Automobile sales in May 2023 saw a significant growth of 17.9% YOY, with passenger cars achieving their highest-ever sales.
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Electric vehicle sales continued their upward trend, surpassing the 1 lakh mark for the eighth consecutive month in May. This growth was driven by the rationalization of subsidies under the FAME scheme, effective from June 1.
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Two-wheeler sales accelerated during the month, and tractor sales improved after a previous decline.
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Vehicle registrations experienced an increase, primarily led by non-transport vehicles.
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Petroleum product consumption showed a month-on-month increase of 4.5% in May, mainly driven by the demand for transportation fuels.
India’s unemployment rate was 7.7% in May, higher in urban areas. The labor force participation rate (LFPR) and employment rate (ER) decreased to 39.6% and 36.6% respectively, from the previous month.
India’s merchandise exports in May 2023 contracted for the fourth consecutive month, declining by 10.3% YOY to reach US$ 35.0 billion. This decline was widespread, with about three-fourths of the export basket (17 out of 30 major commodities) experiencing a decline compared to the previous year.
Mobile phone exports in 2022-23 surged, doubling to reach US$ 11.1 billion, aided by the Production Linked Incentive (PLI) scheme. India’s import of mobile phones decreased from US$ 2.6 billion in 2017-18 to US$ 1.4 billion in 2023, resulting in a trade surplus of US$ 9.7 billion in the mobile phone category.
The deficit indicators increased while tax revenues and non-debt capital receipts contracted in April 2023,. Total expenditure grew primarily due to higher revenue expenditure. GST collections in May 2023 recorded a year-on-year growth of 11.5%.
The IMD’s updated long-range forecast for the South West Monsoon (SWM) rainfall in May 2023 remains unchanged at 96% of the long-period average (LPA). The forecast indicates a higher probability of normal to above-normal rainfall across the country, except for the northwestern region.
The manufacturing sector’s headline PMI reached its highest level since October 2020 at 58.7 in May 2023, driven by output, new orders, and stocks. The services PMI remained strong at 61.2, the second highest in 13 years, due to increased new business growth and favorable market conditions.
Headline inflation based on the all-India consumer price index (CPI) moderated to 4.3% in May from 4.7% in April. The decline was influenced by food and fuel sub-components, while core inflation (excluding food and fuel) remained stable.
Core inflation in May remained steady at 5.1%, as the momentum of 40 bps was offset by the base effect. Subgroups like housing, clothing, household goods, health, transport, and education saw inflation deceleration, while pan, tobacco, intoxicants, and personal care showed an uptick.
States recorded inflation ranging from 4-6%, with Haryana, Mizoram, and Tripura experiencing inflation between 6-8%.
The all India house price index (HPI) in the housing sector recorded its highest increase in seventeen quarters, rising by 4.6% year-on-year in Q4:2022-23.
FPI flows reached a nine-month high at US$ 5.5 billion in May 2023, mainly driven by US$ 5.0 billion of inflows in the equity segment. Indian equities attracted the second-highest FPI inflows among comparable emerging market peers during that period.
India’s foreign exchange reserves rose by $69.2 billion since October 21, 2022, reaching $593.7 billion by June 9, 2023. These reserves cover 10 months of projected imports for 2022-23 or 97% of the total external debt outstanding as of December 2022. In 2023, India recorded the second-highest increase of $31.0 billion among major reserve-holding countries.
The INR depreciated by 0.4% against the US dollar in May 2023, aligning with the trend observed in most emerging market economies.
