Monthly Economic Report – August 2022

What’s in News?

Ministry of Finance have released the Monthly Economic Report for August 2022.

This report is compiled by the Department of Economic Affairs under the Ministry of Finance

Report Highlights:

(i) India’s Progress in 75 Years of Independence:

• GDP per capita is at ₹1.7 lakhs in the 75th year having grown eight times since independence at today’s prices.
• Traditional economy becomes a modern one as the share of industry in gross value-added rises from 15.5 per cent at independence to 25.9 per cent in the 75th year while that of services increases from 34.1 per cent to 47.5 per cent.
• Share of exports in GDP increased by more than three times since independence, from 6.4 per cent in 1950-51 to 21.5 per cent in 2021-22
• Future generations of India are increasingly secure as infant mortality rate declines from 78.5 deaths per 1000 live births in 1992-93 (NFHS-1) to 35.2 in 2019 (NFHS-5)
• India’s population is more educated as the literacy rate increased from 40.8 per cent in 1981 to 74.4 per cent in 2018.

(ii) Q1 of 2022-2023:

• The provisional estimates released by National Statistical Office (NSO) show real GDP in Q1 of 2022-23 going past by nearly 4 per cent the pre-pandemic real GDP level of Q1 of 2019-20.
• Q1 of 2022-23 launches the re-growth phase as India moves up to becoming the 5th largest economy in the world surpassing that of the UK.
• The contact-intensive services sector which was the worst affected during the pandemic, sharply rebounded on a low base to grow 25.7 per cent

(iii) Surge in Private Consumption:

• The release of pent-up demand and freer mobility may not be the only reasons underlying a tremendous growth in private consumption which, having risen from 55.5 per cent of GDP in Q1 of 2021-22 to 61.1 per cent in Q1 of 2022-23.
• Surge in private consumption may also be a reflection of increasing effectiveness of income support and targeted subsidies provided by the government, creation of jobs from elevated levels of public sector capex, and general rise in employment levels.

(iv) Investments:

• Investment rate to sharply increase from 28.2 per cent of GDP in Q1 of 2021-22 to 29.2 per cent in Q1 of 2022-23, supported by growth in the production and imports of capital goods.

(v) Unemployment Rate:

• The expansion in economic activity along with a spurt in employment opportunities has led to a fall in the unemployment rate
• The unemployment rate is now below pre-pandemic levels
• The rate of job creation in the service sector picked up to its strongest in over 14 years, with improvement seen in each of the sub-sectors including transport, information & communication, finance & insurance and real estate & business services

(vi) Fall in MGNREGA:

• Work demanded under MGNREGS has been diminishing since May and was at its lowest in August 2022, compared to the corresponding period of the previous two years, signalling a possible reduction in the unemployment rate in rural areas.
• This fall can be attributed to a pick-up in agricultural and non-agricultural activities coupled with the end of reverse migration resulting from increased employment opportunities in industrial/urban areas.

(vii) Global Growth and Trade Outlook Weakens:

• Global composite PMI declined from 50.8 in July, 2022 to 49.3 in August, as manufacturing and services output, mainly in advanced economies contracted.
• The US witnessed a massive slowdown with its rate of decline the steepest since May 2020.
• Japan, Germany, the UK and Italy faced similar contraction of output
• However, manufacturing output and services activity both continued to rise across emerging markets, including that in India besides Brazil and China

(viii) External Sector:

• During Q1 of 2022, India was the 5^th largest recipient of foreign direct investment (FDI) among the defined set of developed and developing economies
• India’s strong forex reserves, which are 3rd largest as compared to other economies are boosted by capital inflows during the two pandemic years and are adequate to cover imports equivalent to 9 months as of July 2022, which is higher than most of the other economies.

(ix) Inflation:

• The post-pandemic inflation is a common to both advanced and developing economies, the phenomenon is more persistent in the former and pre-date the Russia-Ukraine conflict.
• The reason is that advanced economies infused liquidity injections to finance their fiscal measures, implemented in response to the pandemic.
• The inflation in India is not liquidity driven but due to external factors such as high commodity prices
• Further, as these external pressures ease, inflationary pressures in India are also likely to subside

(x) Recommendation:

• Vigorous pursuit of asset monetisation at all levels of government will help lower debt stock and hence debt servicing costs.
• That would cause risk premiums to drop and credit rating of India to improve and a virtuous circle would set in as the quality of public expenditure increases in its wake and the private sector enjoys a lower cost of capital

Way forward:

• There is a need for eternal macroeconomic vigilance to ensure sustained growth
• In times when slowing growth and high inflation are afflicting most of the major economies of the world, India’s growth has been robust and inflation in control.
• A rapid coverage of vaccination and well-calibrated short-term policy measures have skilfully navigated the economy through turbulent times, preparing a strong foundation to build a prosperous nation in the years ahead.