Business cycle showing signs of improvement in August, says BluFin BCI

NEW DELHI: The dip in the Index of Industrial Production in June was shocking but according to economy tracker BluFin, the business cycle has started showing signs of improvement in August.

The BluFin Business Cycle Indicator (BCI), which tracks the business cycle in the Indian economy, rose marginally to 157.3 in August from 156.8 in July. BluFin says this marginal 0.3% rise is significant because it is the first time in six months that the BCI has risen on a month-on-month basis.

The BCI year-on-year (YoY) growth rate improved from +1.9% in July 2012 to +2.6% in August 2012. This reflects the economy is still growing compared to the previous year, albeit at a much subdued level.

Though growth rates are very low, a moderate monthly improvement and a continuous y-o-y growth points out to an early evidence of the business cycle to be healing.

The BluFin BCI is a monthly composite indicator of primary and secondary macro variables formulated to track the state of the business cycle in the Indian economy. It is based on components falling under five broad categories: capital markets, foreign trade, policy, real economy and survey.

While most of the BCI components still remain significantly weak, improvements seen in some of components could be pointing towards early signs of moderation in the intensity of the slowdown. A bottoming out by end of this year cannot be completely ruled out.

There have been early signs of improvement in demand and supply parameters of real economy components such as some key intermediate goods like aluminium, rubber and cement etc.The trend has been observed consistently for some time now.

However, some of the other key input variables, which are significantly exposed to international market movements like copper and steel, continue to create a negative influence on the BCI.

The Capital market components of BCI continue to be weak with equity markets still in the red and high gold prices internationally. Within the external sector, import traffic has been on the decline, especially iron ore traffic.

Also, petrol import bills are on the decline while agricultural exports have risen. India's trade deficit has shown some y-o-y improvement recently.

On the fiscal policy front, non plan expenditure consolidation has been in place for some time now and revenue earnings are growing at a steady rate. This should help in better management of the gaping fiscal deficit.