SABNAVIS ECONDEX AUGUST 2013

Today we all talk of the state of the economy based on a single indicator that appears in the media. Hence, when the IIP numbers are out, and show a negative tendency, we say that the economy is not doing well. High inflation numbers that come out on the 12th of the month are looked at with apprehension while movements in exchange rates bring out mixed emotions. The question is whether or not we can capture all these aspects in a single number. The ECONDEX captures the same for India at any point of time.

Watch the dark bold line in red for this year

What does this show? 1. This year has started at higher level than earlier years, and sustained in May too. 2. Confidence level however has fallen sharply in June and while it has recovered marginally in July remains below the same in the last 3 years.

16 14 12 10 8 6 4

SABNAVIS ECONDEX

2010-11

2011-12

2012-13

2013-14

Explanatory note The SABNAVIS ECONDEX The SABNAVIS ECONDEX (Economic Index) looks at 13 economic indicators that capture various aspects of the economy such as: 1. Deposits: savings taking place 2. Credit: state of investment/production 3. IIP growth: state of industry 4. GSec yields: interest rate scenario 5. WPI: Production based inflation 6. CPI: Consumer price inflation and loss of purchasing power 7. Primary issues in capital market: investment climate 8. Secondary market movement: Optimism in market 9. FII inflows: Foreign interest in Indian markets 10. Exports: Export buoyancy 11. Imports: Reflective of internal growth 12. Forex reserves: External stability 13. Forex rate: Volatility in the market.

The aggregate score ranges between 0 and 20. Each indicator is looked at in multiple ways: changes year on year or cumulative changes or changes over previous month of March depending on the variable. The sum of all these scores is the Score for the month. These 13 variables have different weights based on how important there are and the inter-relationship between them, to minimize double counting.

How often does ECONDEX change? 1. It changes every time information is received on any indicator. 2. The most contemporary number will be used for all other indicators when say the WPI number comes in. This is so because we anyway treat, say the March IIP number as the most recent one in all our analysis. 3. However, once all the numbers are in for a month, then that number becomes the final score for the month.

What does The ECONDEX show? 1. It shows how much better or worse we are compared to previous years as well as previous months of the same year. 2. In case there are seasonal patterns, they get captured adequately here.

What does it not indicate? 1. The ECONDEX is not forward looking and does not purport to make any forecast of the future. 2. It is not an econometric model and hence does not make any connections between variables. 3. It does not capture variables on which high frequency data is not available like agriculture. But indirectly it does take the performance of this sector through the inflation indices. 4. It does not include variables whose movements are theoretically debatable: whether fiscal deficit is good or growth in money supply, inflationary. However, their negative impacts come out through movements in inflation numbers or interest rates.

How is it unique? Presently there are surveys that talk of state of the economy. There are forecasts about the economic variables during the year. A security house makes forecasts based on some leading economic indicators. But, there is no statistic that captures the current state of the economy.

As this Score will change every time any of the 13 variables change, it will be quite unique as it reports on a near real time basis the confidence levels on the economy.

TRACK the economic confidence in the country.