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Economy: Five things that suggest pickup
In 2008, a crisis in the US shook the world economy. India was one of the few countries, which was not too affected. This was because the Indian engine was powered by high demand in the country. However, a high inflation and other factors ate into this demand, and the economy slowed down.
It has been two years since India grew at a rate over 5%. The narrative seems to be changing now. Recent data is causing optimism about a growth recovery in the current fiscal year.
Here are five factors that indicate a pickup in India's economy:
Manufacturing is an important aspect of the economy. It contributes about 15% to the Gross Domestic Product (GDP) - a measure of the economy. A fall in factory output was a key reason for the slowdown in the economy. However, recent data indicates a pickup in manufacturing. The Index of Industrial Production (IIP), which measures factory output, grew 4.7% in May 2014 from the previous year - the highest since October 2012. It grew another 3.4% in June. This indicates that companies are confident about a rise in demand. The Purchase Managers' Index (PMI) - which measures orders received by managers - too signalled a revival in the sector. The PMI index jumped to a 17-month high of 53 in July, signalling the ninth month of expansion in the industry.
Service sector PMI:
The services industry is the largest contributor to the Indian economy. It contributes nearly 56% to the GDP. Data suggests that the services sector has started expanding again. The service sector PMI has remained over the mark of 50 since May this year. It hit a high a 17-month high of 54.4 in June. However, it fell marginally in July to 52.2. Services PMI had languished at sub-50 levels in 2013, as the sector contracted and orders stopped flowing in.
Pickup in demand:
The Indian economy relies heavily on domestic consumption. Economic data suggests demand has recovered in the past few months. The sub-index in the manufacturing PMI index that measures new orders jumped to 55.9 - the highest since February 2013. This indicates businesses are witnessing a rise in orders. The auto industry too saw a 15% rise in car sales in June - the fastest rise in 10 months. The improvement in demand is good news for both companies and the overall economy.
In a globalised world, the external sector plays an important role. This includes any imports and exports of goods and services as well as fund flows. It is one of the most important factors for the currency. Data suggests there is an improvement in the external sector too, especially in exports. Exports grew at over-10% rates in May and June, and 7% in July. This has been largely due to an improvement in the economies of developed countries. The government's efforts last year to curb gold imports too have helped narrow the current account deficit to 1.7% of the GDP in 2013-14 from 4.8% in 2012-13. This is the amount India owes to the world in foreign currency. It directly affects the rupee's valuation. As a result, the rupee has remained stable at Rs 60/$ levels after last year's free fall.
Corporate profits up:
For many quarters, companies suffered from poor consumer demand and high interest rates. As a result, profit growth staggered. However, the April-June quarter earnings season has seen a great improvement in corporate profits. Net profit grew at 29.76% the fastest pace in the past 18 months in the June quarter, a report by Mint, a business newspaper, said.
Net sales of 285 companies in the BSE 500 index grew 9.79% in the April-June quarter, according to the report by Mint. This is the fastest pace in nine quarters or 27 months, and indicates a revival in consumer demand. Net sales grew faster for 28 of the 30 Sensex firms at 11.52% from the previous year. This is much higher than the 5.49% in the previous quarter.