Indian economy got a festival boost, but growth is limited because...

Weakness in the labour market, sharp annual contraction in corporate bond issuances and loss of momentum in the manufacturing and services sectors limited the festival boost Indian economy received in October, indicates the monthly economic performance barometer of CareEdge Ratings, the data analytics and detailed research arm of credit rating agency CARE Ratings Ltd.

The CareEdge Economic Meter (CEM), which grew by 7.5% in October compared with a muted expansion a month ago, is a composite index that covers 18 high-frequency economic indicators to track the state of the economy on a real-time basis.

The rate of CEM expansion was the highest in the last 5 months. CareEdge attributed it to the increased economic activities led by a festive demand boost during the month. Out of 18 high-frequency indicators that are used in CEM calculation, 9 witnessed a significantly higher annual growth in October compared with a month ago, the agency said.

The indicators which supported growth included GST collections (a 13.4% y-o-y increase in October to ₹1.72 lakh crore), E-way bill generations (which jumped to an all-time high of nearly 10 crore in October, recording an annual growth of 30.5%), India’s merchandise exports (6.3% growth in October aided by favourable base effect) and Passenger Vehicles (PVs) and 2-3 wheeler sales (PV sales expanded by 16.7% (y-o-y) up from 5.1% a month ago while 2-3 wheeler sales jumped by 17.2% compared with a muted 2% growth in September).

Other indicators like rail passenger and freight traffic, credit growth and power consumption also performed well supporting the overall economic index during the month.

However, the upside was limited because of the poor performance of other indicators. For instance, the corporate bond issuances contracted for the third consecutive month in October (24% lower y-o-y basis) due to higher borrowing costs, while tractor sales contracted for the 7th consecutive month (5.3% in October) indicating an uneven rural demand recovery. Similarly a spike in rural joblessness caused the unemployment rate to surge beyond 10% in October 2023, highest level seen in more than two years.

The agency said that 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 also pointed out that both manufacturing as well as services sectors 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).