2.

Inflation
3. IIP
4. PMI
5. Balance of payments
6. Current account deficit
7. Fiscal deficit
8. Crude oil
9. Geo political risk
10.Govt. policies
11.GST
12.Monetary policy
13.Elections
14.Seasonal changes
15.Unemployment

GDP Growth rate:

India's gross domestic product (GDP) growth is expected to come in at 7.8 (Small Upside)
per cent in fiscal 2023.
Sr. Macro-Economic Impact
No Factor
1. Inflation When domestic production increase then the price likely to
decrease and inflation to decrease
 2. IIP As production in manufacturing and mining sector likely to
increase so simultaneously IIP will increase

3. PMI GDP to rise means definitely the production will rise and likely
to increase the PMI to support the production

4. Balance Of As domestic production will increase it will decrease the

Payment imports and BOP will decrease

5. Current Account CAD will decrease as import will decrease

Deficit

6. Fiscal Deficit As GDP to increase means high income for government fiscal
deficit to decrease

7. GST GST collection will be increased but rates cannot be increased

as due to earlier price hikes

8. Crude Oil Crude oil demand may increase due to home production and
price likely to remain neutral to GDP fluctuation

9. Unemployment As GDP increase more jobs created and unemployment

decreases

10. Monetary policy The increase in the money supply is mirrored by an equal
increase in nominal output, or Gross Domestic Product so it is
likely to remain same or contract as demand curve shifts right

Govt. policies
Government policy describes a course of action, creating a starting point for change. They
can influence how much tax the community pays, immigration status and laws, pensions,
parking fines, and even where you go to school. While policies are driven to be non-
discriminatory, they can affect specific groups of individuals. Policies are not laws, but they
can lead to laws.

interventions and stimulus. The speed of unemployment return to its previous rates will be
gradual and slow. Moreover, the income losses concentrated among the poorer members of
society. Low-paid unskilled workers, as well as young workers, are much more suffering
during a decrease in consumption. Thus, the countries with high inequality will suffer more
of welfare loss from unemployment during the recession
Impact on BOP
India is an important trading partner with many countries across the world. Although running
a trade deficit, the gap between the country’s imports and exports has been steadily declining
in recent months. Due to a crash in global oil prices, this trend is likely to continue further
too. India’s supremacy in specific sectors such as mineral fuels, gems & jewellery,
pharmaceuticals, chemicals, textiles, engineering goods and food commodities has
contributed to it becoming a key part of the global value chain. A closer analysis reveals that
while India exported to over 200+ geographies in 2019, trade was largely concentrated in a
handful of them. In fact, India’s top 10 trading partners constitute nearly 50% of all exports
originating from the country. Such geographical concentration may pose a risk for Indian
exporters in the current situation, given that exports recovery will largely be led by an
increase in demand from these countries particularly. There may be a silver lining here as
well -- with many of these countries now looking at reopening their economies, there could
be a rise in demand in the coming weeks. Indian exporters should watch developments in
these geographies closely, and be prepared to capitalize on any opportunity that presents
itself. Relation between crude price and other indicators:
GDP decreases due to elevated product costs, overheads. Product costs increase due to
increase in transport overhead – inflation rate rises. Overheads may cause companies to cut
costs – unemployment rate rises. Inflation rate increase leads to repo rate increase to pull cash
out of the economy. Trade deficit rises due to increased overheads; current deficits also rise.
Fiscal deficit increases due to unforeseen spending by the government. Business Expectation
Index goes down due to increased costs. Manufacturing and Service PMIs go down due to
rising costs; Consumer confidence goes down due to increased prices. Foreign exchange rate
decreases since currently USA is the largest producer of crude and any increase in crude price
leads to an increase in USD.
Impact on CRUDE OIL PRICE
The government earns a large chunk of its income from excise duties with roughly 90% of it
coming from oil imports. It is interesting to note that the prices for retailers have not been
reduced since the government is using the buffer to fund its expenses. However, once the
lockdown ends, the government can face increased pressure to reduce the fuel prices for
consumers. Indian oil companies, especially the E&P space (upstream) like ONGC and Oil
India, may face tough times ahead because of increased pressure to sell their products at
lower prices ahead. The refiners and distributors (downstream) like HPCL, Reliance and
IOCL are likely to see improved margins in the coming quarters, once the demand picks up
again. As for the storage, if the Indian companies can manage their stockpile well, this is a
good time to buy and reserve oil for future use. As per the Reserve Bank of India, India’s
current account deficit (CAD) stands at 0.2% of GDP, as of December quarter in FY20 as
compared to 2.7% in same quarter in FY19. Since, India imports more than 80% of its oil
consumption, lower oil prices are likely to reduce the CAD for the economy. The current
savings in CAD can, then, be used to continue financing the urgent relief measures against
the domestic Covid-19 outbreak.
Relation between fiscal deficit and other indicators:
High fiscal deficits will result in balance of payments deficits. Increase in fiscal deficit can
boost a sluggish economy by giving more money to people. The effect of fiscal deficit
increase leading to CAD increase is known as ‘Twin deficit hypothesis.’
Impact on FISCAL DEFICIT
Considering the impact of COVID-19 on GDP, the new fiscal deficit will be 3.88 per cent of
GDP. The government had raised the fiscal deficit target to 3.8 per cent of the GDP from 3.3
per cent pegged earlier for 2019-20 due to revenue shortage. According to the report, based
on current tax revenue trends, additional expenditure rationalization of Rs 1.2 lakh crore
might be required in the current fiscal if India has to stick to the mandated 3.8 per cent fiscal
deficit target.
Impact on INFLATION
COVID-19 would impact economic activity in India directly due to lockdowns, and through
second round effects operating through global trade and growth, according to RBI annual
policy report. The impact of COVID-19 on inflation is ambiguous, with a possible decline in
food prices likely to be offset by potential cost-push increases in prices of non-food items due
to supply disruptions, the RBI noted. Risks around the inflation projections appear balanced
at this juncture and the tentative outlook is benign relative to recent history. But COVID-19
hangs over the future, like a spectre, RBI stated.
Headline consumer price index (CPI) inflation breached the upper tolerance band of the
target in December 2019 and peaked in January 2020, before ebbing prices of vegetables,
fruits and petroleum products produced a downward shift of 100 bps in February. The
trajectory of inflation in the near-term is likely to be conditioned by the pace of reversal of
the spike in vegetables prices, the dispersion of inflationary pressures across other food
prices, the incidence of one-off cost-push effects on various elements of core inflation and
especially, the evolution of the COVID-19 outbreaks.
Looking ahead, three months and one year ahead median inflation expectations of urban
households softened by 10 bps and 20 bps, respectively, in the March 2020 round of the
survey conducted by the RBI. The proportion of respondents expecting the general price level
to increase by more than the current rate also decreased for both three months and one year
ahead horizons vis-vis the January 2020 round. Although largely adaptive, inflation
expectations of households and firms can shape future inflation through price and wage
setting behaviour. According to the Reserve Bank's consumer confidence survey for March
2020, inflation expectations moderated over the previous round.
Relationship of IIP with other indicators:
With Index of Industrial Production (IIP) growth turning negative, it is reasonable to expect
that the industry component of GDP will grow at a much slower pace.
Impact on IIP
The covid-19 lockdown has led to massive retrenchment and loss of output across sectors. In
March, manufacturing output slumped 20.6% while electricity generation shrank 6.8%
India’s factory output shrank by a record 16.7% in March as economic activity came to a
standstill because of the ongoing nationwide lockdown, prompting the government to
announce a massive fiscal stimulus plan to revive industrial activity.
The lockdown, which came into effect on 25 March, also impacted data collection for both
the index of industrial production and consumer price index (CPI); so much so that the
National Statistical Office did not release the retail inflation number for April. It only
released price movements of selected subgroups of CPI as field investigators had to rely on
telephonic enquiry for data collection from the designated outlets. The data showed food
inflation quickening in April to 10.5% from 8.76% a month ago.
In March, manufacturing output slumped 20.6% while electricity generation shrank 6.8% and
mining output grew at 0%, government data showed. For the year ended 31 March, factory
output contracted 0.7% against 3.8% growth in the previous year. Most forecasters have also
slashed their GDP growth projections for FY21, fearing the lingering impact of the lockdown
on the Indian economy. Moody’s Investors Service expects the economy to grow at 0% in
FY21, while Swiss bank UBS projected the country’s economy to contract 3.1% if mobility
restrictions largely stay in place until end-June and economic activity returns to normal by
end-August.
Impact on PMI
A gauge of India’s services sector pointed to a contracting in activity for the second straight
month even as the gradual unwinding of lockdown restrictions helped push up activity from a
‘historic low’ in April. The India Services Business Activity Index stood at 12.6 in May
against in April, according to a media statement by IHS Markit. A reading below 50 indicates
contraction in business.
Services activity sank sharply due to extended business shutdowns and very weak demand
conditions, the statement said. The latest survey data pointed to a substantial decline in new
work intakes at Indian service providers in May. Foreign demand, too, continued to remain a
drag. The companies surveyed reported a 95% fall in foreign demand compared to April.
Despite some easing in restrictions in May, a number of firms reported a build-up in
unfinished work due to idle operations. But overall backlogs of work declined. Employment
at services sector companies was reduced further during the latest survey period. The rate of
job shedding remained strong by historical comparisons, despite easing since April. India’s
PMI readings were among the lowest in April as the country enforced a far strictest
lockdowns than most other countries. Despite some easing in restrictions for economic
activity in May, India’s PMI is likely to once again feature among the lowest worldwide.
Even manufacturing PMI, which saw a smaller hit in comparison to services, at 30.8,
remained lower than a number of other economies.
Indian Economy in 2023 with analysis of Different macro-economic factors using two
scenarios:
S1: Expect the crisis in Ukraine to improve, if not completely end. S2: Crisis continues for a
prolonged period.
FY 2022-23 critical for India’s economy as the government and the RBI work at
balancing the stress on inflation, currency, external accounts, and fiscal deficit. The
good news is, India has endured the pandemic for over two years and has come out of it
more resilient.
Prices of crude oil and gas, as well as food grains like wheat and corn, and a variety of other
commodities, have risen as a result of the Russia-Ukraine situation. The conflict has also
resulted in severe financial and political sanctions against Russia by the rest of the world,
particularly Western powers. It goes without saying that they will have unforeseeable and
undesirable consequences for the global financial system and economy.
India's growth prospects have also been impacted by the crisis. Crude oil prices have
remained above $100 per barrel for the past two weeks, wheat prices have increased by 50%
in the last two weeks, and edible oil prices have increased by 20%—all of which are crucial
imports from the two warring states. India gets some of its fertiliser from the region as well.
This predicament is making problems worse for India, which has been fighting inflation for
some time. Government revenues will be reduced when fuel and fertiliser prices rise, while
subsidy expenses will rise. Capital withdrawals and rising import costs will also have an
impact on the current account balance and currency valuation.
In FY2022–23, India's GDP growth will be between 7.5 and 8.0 percent. Pent-up demand is
expected to rise up with a minor lag as increasing food and energy prices (with a lag) weigh
on consumers' attitudes and wallets. Before investing, companies will wait for demand
signals and evaluate cost increases. As uncertainties fade, we expect growth to pick up in the
second quarter of FY2022–23. The early panic may result in capital outflows (as we've seen
recently) and quick currency depreciation, but both are likely to regain some ground by the
end of 2022. The government gradually increases fuel prices as reduced excise levies assist
absorb growing global prices. Consequently, the fiscal deficit deteriorates marginally because
of higher subsidies (for fertilizers) and reduced excise duty revenues from oil but with no
long-term implications on the government’s consolidation targets.
Economic fundamentals weaken and growth suffers if the crisis lasts for a long time. Inflation
remains high, and financial stress leads to slow credit growth and reduced capital
expenditure. Over the next two years, the fiscal deficit will remain much higher than the
desired consolidated levels.
Over the coming year, inflation will most likely be the wild card. Sharply rising oil and gas,
commodity, food, and fertiliser prices might result in a terms-of-trade shock and cost-push
inflation. Supply interruptions and bans will raise global inflation, which will affect domestic
pricing as well. While rising production costs across industries will raise producer prices, the
impact on consumer prices will be determined by the degree of pass-through. Furthermore,
the present quick reopening of the economy will spur growth in contact-intensive service
sectors, which have previously lagged. This will raise service prices as well, contributing to
the inflation problem. Because of increased food and fuel prices, as well as unfavourable
terms of trade, expect inflation to soar in the next quarters of FY 2022–23. The RBI will most
likely lean toward price stability and, as a result, boost policy rates.