As India celebrates its 77th Independence Day, the Asian tiger is on the prowl to emerge as the world's third-largest economy.
But like Tolstoy's happy families, there are unhappy things causing unhappiness in their own way. High inflation, particularly food prices, is the thorniest issue among all. Job creation remains less than desirable, while private investment is yet to regain its roar.
Here are four things to know about the state of the economy this Independence Day.
Inflation
Seven years ago, delivering his third Independence Day speech on August 15, 2016, Prime Minister Narendra Modi gave his administration a high-five for setting an annual inflation target and further vowed to ensure that the food plate for the poor remains unaffected by high prices. But on the eve of Independence Day, official data delivered bad news:
Headline inflation soared to 7.4% in July, led by an increase in food prices that was back in the double-digit zone at 11.51%. Just a month earlier in June, inflation stood at 4.8% and one would have expected prices to drop further like a rock in July.
Instead, inflation printed way off the RBI's mandated 4% mark.
But then, the central bank had seen this coming and had forewarned us about high prices in the second half of 2023, which it dutifully reiterated as late as last week.
So, for now, all that households can do is summon the good luck charm, as food prices may continue to blow hot and cold for some time.
RBI's fight continues
For the country's designated inflation-warrior, RBI, the July CPI data may seem like the proverbial curate’s egg -- partly good and partly bad. It is bad primarily because of high food prices -- with tomatoes playing the villain.
That said, RBI has gained enough experience to live through such tomato-tantrums, and as its research suggests, high tomato prices last an average of 2.6 fortnights. Until then, the central bank will sit on its hands.
The good news came in the shape of core inflation (excluding food and fuel prices), which slipped below 5%.
But as Governor Shaktikanta Das stressed last week, the central bank remains watchful and will go beyond keeping Arjuna's eye to keep the price rise in check.
In other words, it's a confirmation from Das that the key policy rate has peaked at 6.5%, and there may not be further rate hikes unless unforeseen external factors upset the applecart.
To deal with any short-term price rise, RBI will deploy indirect tools, like the incremental cash reserve ratio of 10% announced last week to absorb excess liquidity that could have added to the inflationary bonfire.
Jobs
The trouble with jobs is that, if high unemployment rate is one significant concern, the reliability of official data is another.
Ever since the government disowned its own jobs data ahead of the 2019 general elections, the credibility of official statistics has come under constant attack.
The latest data pegged unemployment rate in urban areas at 6.8% during January-March, 2023, down from 8.2% a year ago, but private estimates by CMIE show the unemployment rate hovered around 8% in July.
Regardless of whether one takes official data at face value, what's indisputable is that the pace of job creation must increase to accommodate India's increasing workforce. The government is placing all its bets on Make in India and PLI-manufacturing push for large-scale job creation, but its outcome remains to be seen.
GDP
In FY23, the Indian economy leapt from despair to respair, growing at 7.2% over FY22.
India remains a bright spot this fiscal too, and as secondary indicators of growth -- like rising bank credit, passenger vehicle sales and air traffic -- show that Asia's third-largest economy is holding up well.
However, the picture is not quite so rosy on some parameters. The foremost among these is private investments, the missing piece in the country's growth story.
Though capacity utilization has touched the trendline 72-73%, companies remain cautious, and as RBI's forward-looking surveys show, companies expect to live with cost pressures from financing and wages this quarter. Should there be any increase in input prices in the coming quarters, that will further add to their concerns.
Private consumption, which was picking up pace, is likely to be under pressure due to high inflation and interest rates. Even though consumption demand grew in FY23, analysts expressed concerns over unevenness, with urban consumption leading from the front while rural spending remained moderate. Moreover, whether the revenge-consumption-led service sector spending will continue this fiscal remains to be seen.
Lastly, much depends on the direction of the US economy, and whether it can avoid a hard landing. Though quarterly growth numbers offer hope, the recession or slowdown worries haven't died down.