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India’s economic activity at 5-month high of 7.5% in Oct led by festive demand, says CareEdge

India’s economic activity index grew at a 5-month high of 7.5 per cent in October, supported by increased economic activities led by festive demand boost.

Led by the festive demand, India’s economic activity index, as measured by the CareEdge Economic Meter (CEM), grew at a 5-month high of 7.5 per cent in October, as compared to the muted expansion a month ago. This, it said, was supported by increased economic activities led by festive demand boost. Out of the 18 high-frequency indicators that are used in CEM calculation, CareEdge said, 9 witnessed a significantly higher annual growth in October compared with a month ago.

What’s supporting growth?

According to CareEdge, GST collections in October surged 13.4 per cent on-year to Rs 1.72 trillion, which was the highest growth in the last 10 months owing to a pickup in consumption due to the ongoing festive season as well as increased compliance. Further, e-way bill generations also jumped to an all-time high of nearly 10 crore in October, recording an annual growth of 30.5 per cent, reflective of an increase in goods movement due to the ongoing festive cheer and upcoming wedding season. India’s merchandise exports grew by 6.3 per cent in October aided by favourable base effect whereas merchandise imports expanded twice as much by 12.4 per cent. Also, both Passenger Vehicles (PVs) and 2-3 wheeler sales accelerated in October posting a double-digit growth owing to festive push. PV sales expanded by16.7 per cent on-year up from 5.1 per cent a month ago while 2-3 wheeler sales jumped by 17.2 per cent compared with a muted 2 per cent growth in September. Other indicators, CareEdge said, that performed well supporting the overall economic index included rail passenger and freight traffic, credit growth and power consumption.

What limited the growth?

Meanwhile, indicators that limited the upside included corporate bond issuances contraction for the third consecutive month in October (24 per cent lower YoY basis) due to higher borrowing costs. Besides subdued fundraising by the corporates, weakness in the rural labour market weighed on the index. “A spike in rural joblessness caused the unemployment rate to surge beyond 10 per cent in October 2023, the highest level seen in more than two years. Though rural unemployment generally goes up in October every year due to seasonal factors as the Kharif sowing ends in September, the increase was much sharper this year owing to the weak monsoon,” it said. Both manufacturing as well as services sectors, CareEdge said, witnessed some moderation in activities due to slowing demand and higher costs in October as reflected by the PMI numbers. Manufacturing PMI slowed to an 8-month low of 55.5 whereas services PMI eased to a 7-month low of 58.4.

Other economic indicators posting positive sentiments ahead

Further, in its November bulletin, RBI had said that India’s GDP in the October-December quarter is expected to see a sequential rise from the previous quarter. India is poised to maintain its growth momentum as strong macroeconomic fundamentals impart resilience in the face of global headwinds.

RBI’s economic activity index nowcasts GDP growth for Q3 FY24 at 6.3 per cent, the bulletin said. It added that the momentum of the change in GDP is sequentially expected to be higher in Q3, with festive demand remaining ebullient. Per the report by RBI, investment demand appears to be resilient with the government’s infrastructure spending, an uptick in private capex, automation, digitalisation, and indigenisation providing a boost. Investment in the private sector is beginning to pick up as funds intended for capital expenditure raised by corporates through different channels—from banks/financial institutions, external commercial borrowings, and initial public offerings—during the first half of FY24 were 60 per cent higher than during the second half of FY23, it had said. 

Earlier last month, BCG had released its India Economic Monitor for the month of September which stated that most high frequency indicators exhibited a mild to moderate growth during the month as compared to August. IIP saw an uptick in August 2023 after falling for 2 consecutive months, led by growth in the electricity segment. Both cement production and steel consumption recorded growth. Tractor and 2W sales also logged improvement in September 2023 vs. August 2023, driven by a favorable monsoon. Trade and investment indicators showcased mixed trends. Merchandise trade deficit narrowed to a 5-month low in August 2023. Services trade surplus widened, with an increase in both service exports and imports. Forex reserves reduced for the second consecutive month in September as RBI continued to sell dollars via public banks to prevent a decline in the Indian rupee. FDI also fell sharply in August.

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