RBI’s Economic Activity Index

RBI’s Economic Activity Index

Subject :Economy

Section: National Income

Economic Activity Index that incorporates 27 high-frequency indicators to gauge the dynamics of growth and output. RBI calls this estimation as ‘nowcast’, or conditionally forecast, the current quarter growth by factoring in real-time activity across sectors to identify consistent economic patterns.

The idea is to use machine learning tools and artificial intelligence to project GDP numbers going forward, taking into account high-frequency data releases. The 27 indicators include the monthly Index of Industrial Production, rail freight, tax collections, oil prices, power supply and steel output, besides Purchasing Managers’ Indices.

RBI’s Supply Chain Pressure Index

Index of supply chain pressures for India (ISPI), was developed by extracting common factors latent in 19domestic and global variables for the period 2005-2022, and has been found to track supply pressures on the Indian economy efficiently.

These indicators are classified under two broad categories:

(i) transportation and logistics– Baltic Dry Index is used as a proxy for shipping rates. Truck freight rates as well as domestic railway and air freight traffic are used for domestic component of the index.

(ii) essential intermediates in manufacturing.

It predicts industrial production, GDP and input costs and serves as a lead indicator for future export volumes and inflation. Thus ISPI acts as a macroeconomic early warning system for the Indian economy.