Economy

Published: Dec 29, 2021
Updated: Dec 29, 2021

City Union Bank

Indices augur well for economy

CARE Ratings’ Economic Meter (CEM) shows the monthly progress of the state of the economy based on 11 high-frequency indicators. Each of the indicators reflects a particular aspect of economic activity in areas such as production, consumption, investment and foreign trade.

As can be seen in the graph, the CEM has moved from 4.10 in June to 8.25 in July. This indicates that based on the 11 indicators that have gone into this score, the leading indicators of the state of the economy show distinct improvement. The score juxtaposes the reading of the 11 variables in 25 different ways which compare the monthly performance with the previous month. This is a combination of month-on-month comparison as well as moving averages and cumulative growth depending on the variable.

How to interpret the meter

• Score less than 4 would be associated with stagnation relative to the previous month.
• A 4-6 score would be indicative of a move towards recovery.
• A 6-8 would be a steady-state position.
• Above 8 would be on the path of acceleration.

What it does not indicate The CEM does not indicate whether GDP growth will be higher as it merely answers the question, by looking at 11 indicators which reflect different aspects of the economy, whether we are better off or worse off relative to the last month. It is a metric for the ‘real state of the economy’. There has been a sharp improvement in economic progress in July 2021 as indicated by the CEM value of 8.25 during the month, against a modest 4.10 in June 2021. July witnessed a calibrated easing of lockdown restrictions across Indian states. Economic activities gathered momentum backed by pent-up demand in some areas. Companies too were more sanguine in July relative to June.

Better performance numbers were witnessed for PMIs (manufacturing and services), e-way bills, GST collections, exports, imports, bank credit, power consumption and auto registrations. Performance was down from the point of view of the capital market and employment.

QUALIFYING INDICES

If the CEM remains above 8 for thrSee successive months, it can be inferred that we are on a swift upward path. This qualification is necessary because it should be remembered that the economy is traversing a very unusual phase where several indicators were disturbed quite radically last year, which has provided an upward bias. While the meter does try and iron out the same by looking at all variables from different points of view, this bias has been minimised but not eliminated.