For the third month in a row, India secured the first rank by maintaining a solid lead over its emerging-market peers, shows Mint’s Emerging Markets Tracker (EMT). India posted the second-best performance among the 12 economies in stock markets, GDP growth and the purchasing managers’ index (PMI) manufacturing, which helped the country lift its average score even as its export and currency ranks were among the lowest.
India retained the first rank in June with a score of 77.3, comfortably ahead of Vietnam (73.2) and Malaysia (73.1). While the top two rankings have remained unchanged from May, India’s lead narrowed compared to last month as currency and manufacturing activity weakened and inflation rose further.
Launched in September 2019, Mint‘s Emerging Markets Tracker compares 12 emerging economies using seven high-frequency indicators—GDP growth, manufacturing PMI, export growth, retail inflation, import cover, exchange-rate movements and stock market performance.
Mixed picture
India’s overall activity remained strong, with —the latest available figure for now. However, considering the impact of the West Asia war in the first quarter of the current financial year, GDP growth could lose momentum to around 7.0-7.3%. The data is due later this week.
Manufacturing PMI declined to 53.5 in July from 54.2, inflation rose to 4.5% from 4.4%, and the rupee depreciated 0.9% month-on-month as against a rise of 0.6% the previous month. Export growth, while stronger at 19.5% in July compared to 15.4% the previous month, was driven largely by price rises and paled compared to EM peers.
Stock market performance stood out during the month again as the country witnessed foreign portfolio inflows, strengthening its gains. were ₹20,200 crore in July, the first positive figure since February. Along with the Reserve Bank of India’s special foreign currency non-resident bank (FCNR-B) deposit scheme, the inflow helped strengthen India’s import cover, up to 10 months in July from 9.7 months in June.
While the currency weakened compared to June, the RBI’s decision to close the FCNR-B scheme a month earlier than its original deadline of 30 September shows the central bank’s comfort with the current rupee level of 95.6-95.7 per dollar.
Inflation under watch
Since the beginning of the West Asia war earlier this year, the world has adjusted to the continuing tensions in the region, with several indicators remaining range-bound. have remained around $80-90 per barrel, rarely jumping to above $100 per barrel since May. The energy crisis is also playing out less prominently as countries, including India, were able to diversify their sources.
However, the second- and third-order effects of early price rises are still playing out. India’s inflation rose past the medium-term aim of 4% in June to 4.4% and rose further to 4.5% in July. The rapid surge in food prices amid further risks from deficient rainfall due to is keeping inflationary risks alive.
As a result, even as the RBI left the repo rate unchanged earlier this month at 5.25%, it showed a hawkish tilt in the August monetary policy meeting minutes. RBI governor Sanjay Malhotra noted in the policy minutes that there was a need to be “watchful” as higher food, fuel and other input prices translated into a broad-based increase in inflation.
“Any evidence of these risks materializing may need policy tightening,” he said.
Growth outlook
While the disruptions to economic activity from West Asia war has weakened, the GDP growth in the April-June could decline sharply from 7.8% in January-March, with economists predicting 7.0-.7.3% growth rate.
However, Indian economy has shown resilience and is likely to perform better than anticipated earlier. “A growth of 6.7%, as projected for this financial year is robust, given the headwinds,” Malhotra said.