Four Reasons Why 2023 Is Starting on a Grim Note for India's Economy

From rising unemployment to an all-time high current account deficit, there are several reasons for concern.

New Delhi: Several news reports at the end of 2022 highlighted an important development for India’s economy – the country’s purchasing manager’s index (PMI) for manufacturing rose to a 26-month high of 57.8 in December. This marks the highest increase in factory orders and production since May 2020. The survey, released by S&P Global, said that factories have improved in terms of both employment and purchases.

The celebratory headlines and reports highlighting this development, though, have missed taking note of several other headlines that are worrying as we go into the new year. Taken all together, these indicators create a rather grim overview of the Indian economy at the start of 2023.

1. Current account deficit is at an all-time new high

India’s current account deficit hit a new all-time high in the July-September 2022 quarter, at $36.4 billion. This is 4.4% of the country’s GDP. This beats the record set in October-December 2012, of $32.6 billion – which at the time was 6.7% of India’s GDP.

The current account deficit measures the extent to which the value of a country’s imports exceeds the value of its exports.

2. Unemployment is at a 16-month high

India’s unemployment rate rose to 8.3% in December, the highest in 16 months, from 8% in the previous month, data from the Centre for Monitoring Indian Economy (CMIE) showed.

The figures look particularly bad for the urban unemployment rate – which went up to 10.09% in December from 8.96% in the previous month. The rural unemployment rate slipped to 7.44% in December from 7.55% in November.

3. Rupee is the worst-performing Asian currency

The Indian rupee ended 2022 as the worst-performing currency in all of Asia, with a fall of 10.14%. This is the rupee’s biggest annual decline since 2013.

The rupee finished the year at 82.72 to the US dollar, down from 74.33 at the end of 2021.

4. Sensex saw the worst December in ten years

While the rest of the year went well for the Sensex, 2022 ended on a low – it saw the worst December in 10 years. The 3.5% decline the Sensex saw in December 2022 was its worst last-month returns since 2011.