Bharatiya economy’s macro snapshot – March 2021

Manufacturing PMI fell to a seven-month low of 55.4 but remained above the long run average, suggesting an expansion in economic activity. Further, the Services PMI also fell marginally to 54.6 (although in the expansion terrain) due to lower footfalls and consumer uncertainty over the likely course of Covid-19. Consumer Price inflation in March 2021 was a tad higher than last month on account of rising food prices and consumer discretionary under which, transportation and personal care and effects showed some spikes. Though the overall inflation for FY21 at 6.16% is on the higher range of the RBI’s band, we believe that the prices will stay at similar levels for the short term owing to lockdown restrictions without any significant volatilities.

As we have seen that the RBI has moved apart from the inflation targeting based monetary policy, a higher inflation rate would not warrant an increase in the interest rates at this time.  On the other hand, wholesale prices as we have seen in the last quarter as also is reflected in the manufacturing PMIs which have held above the contraction zone of below 50. Rising wholesale prices do indicate that the economy has faced signals of an increasing demand on account of the pandemic necessities. Apart from rising cost of fuel and power, manufacturing rates have considerably risen in March 2021 under which, metals, plastic, steel and certain food products have shown a stark rise in prices.

The index of indus-trial production is still trending negatively and worsened in the month of February 2021 at -3.6% except for electricity generation, which has given a meagre positive print. The cumulative figure for FY21 at -11.3% tells us that the pandemic has hurt the manufacturing industry except for essential items although certain products such as electronics and vehicles have shown a decent growth in Feb 2021. Manufacturing is not expected to pick up in the short term owing to the restrictions of pandemic.

Exports rose sharply by ~23% MoM due to rising demand for ores and minerals as a result of improving global manufacturing demand along with higher pharma and agricultural exports. We expect exports to continue its momentum going in FY22. Meanwhile, imports also showed a sharp rise (~19%) given the opening up of cross border trade and rising domestic demand. Higher imports meant that the trade balance turned further into deficit at ~ USD 14 Bn. RBI kept the policy repo rate unchanged in its bi-monthly monetary policy announcement while continuing with the accommodative stance.

The FX reserves dropped marginally to ~ USD 580 Bn, due to a decline in foreign currency assets. The unemployment rate fell by 48 bps to 6.52% with Haryana, Goa and Rajasthan recording the highest unemployment. Overall unemployment rate for FY21 averaged to about 9.5%.

Macro – Economic Dashboard:

Macro Snapshot

(This article has been co-authored by Samiksha Punamiya and Nishit Vyas)


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