India’s economic scorecard improved marginally in July, with nine of the 16 high-frequency indicators tracked by Mint above or in line with their one-year average. This was an improvement from June, when eight indicators were above their one-year trend.
Despite the improvement, seven indicators, ranging from domestic air travel to inflation, fell below their one-year average, highlighting continued weakness across several parts of the economy.
Mint’s macro tracker provides a monthly comprehensive report on the state of the economy, based on trends in 16 high-frequency indicators. For each indicator, the value in each month is assigned a colour coding to denote where it lies relative to its one-year average range.
The improvement mainly came from a higher labour force participation rate, with continued support from stronger vehicle sales, bank credit and rail freight, while broadband growth remained steady. But domestic air travel contracted for a second month, labour-intensive exports turned negative after a sharp recovery in June, and the rupee depreciated against the dollar. Besides, rising consumer inflation added to the pressure on ease of living.
The July reading, therefore, shows a slight improvement in the number of indicators performing below their one-year average range, but not a broad-based strengthening. The divergence is particularly visible between goods and services consumption, and between domestic production indicators and the external sector.
Passenger vehicle and tractor sales recovered from their June slowdown, while air traffic weakened further. Similarly, rail freight and bank credit strengthened even as the composite purchasing managers’ index continued to moderate.
However, the improvement was not visible across all forms of consumption. Domestic air passenger traffic contracted 4.8% year-on-year in July, following a 1% contraction in June and growth of 9.5% in May. The continued weakness in air travel stands in contrast to the recovery in vehicle sales, leaving the consumption picture uneven.
On the other hand, production indicators were firmer. Rail freight growth accelerated to 9% in July from 4% in June, while banks’ outstanding non-food credit growth rose to 19.1% from 18.3%. Core-sector growth moderated to 5.4% from 6% in June but remained above the 3.2% recorded in May. The composite PMI, however, continued to lose momentum, falling to 54.3 in July from 57.1 in June and 59.3 in May. It remained above the 50-mark that indicates expansion, but the decline for a third consecutive month suggests that the improvement in some production indicators has not been matched by the broader pace of business activity.
Taken together, the July data point to stronger goods consumption and freight activity, while services demand and the broader business activity gauge remained weaker.
The improvement in July’s economic scorecard comes with a fresh complication with inflation beginning to move higher just as some consumption indicators are recovering.
Food and beverages inflation is estimated to have risen to 5.7% in August from 5.2% in July, according to IDFC First Bank Economics Research. Proteins, edible oils, ready-made products and sugar are driving the increase, suggesting that the pressure is no longer concentrated in a few volatile vegetables. This matters for the consumption recovery because food accounts for a large share of household spending. Higher food prices can absorb part of the gains from stronger vehicle sales and other areas of consumption, particularly for households with limited discretionary income.
However, the pressure is not uniform across the food basket. Vegetable inflation is expected to moderate despite localized pressure in onions, while tomato prices have eased. The broader increase is instead being driven by items such as proteins and edible oils. This distinction is important because it suggests that the August inflation pressure cannot be attributed solely to a temporary vegetable-price shock.
For the economy, that leaves a more complicated picture than the July activity data alone suggest. Consumption has regained some momentum, but a larger food bill could limit how much of that improvement translates into discretionary spending. The inflation picture therefore bears watching alongside the recovery in domestic demand.
The bigger risk lies beyond August's inflation print. With about 97% of kharif sowing completed by 28 August, the focus is now shifting from how much has been sown to how the crop performs. Total kharif acreage was 1.7% below last year, while rice and coarse-cereal sowing were down 3.4% and 2.3%, respectively. Pulses acreage was 1.2% higher, and oilseeds were only 0.5% lower.
The relatively small gap in total sowing masks greater differences across crops and regions. Rice, which has the highest irrigation coverage among the major kharif crops at about 65%, is better insulated from rainfall shortages than pulses, oilseeds and coarse cereals, where irrigation coverage is considerably lower. This means the eventual effect of a weak monsoon could be more pronounced in parts of the crop basket even if aggregate sowing remains close to last year's level.
