State of the Economy-July 2026 Bulletin - Notes on Reserve Bank of India

>This note discusses the article, and each chart to cleanly understand each metric and their meaning. ## Trade (Page 22) 1. India’s merchandise trade deficit, difference in value of goods imported and exported, was at US$ 86.9 billion during Q1:2026-27, higher than US$ 68.7 billion a year ago, and US$ 82.5 billion during Q4:2025-26, primarily driven by ==faster rise in the imports of electronic goods, petroleum products and gold.== 2. There has been a very high growth (triple-digit) in imports from countries such as Oman, Brazil, and Nigeria, reflecting India’s recent ==initiatives to diversify the source== of petroleum, crude and products imports. 3. As part of India’s trade diversification efforts, the India-UK Comprehensive Economic and Trade Agreement [CETA](CETA%20(India-UK)%20July%202026.md) came into effect from [July 15, 2026](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2284878&reg=3&lang=1). 4. 28 Services exports grew by 2.8 per cent (y-o-y) in May 2026 as compared with 9.4 per cent in May 2025, mainly driven by business and transport services, whereas services imports grew at a faster rate of 5.6 per cent (y-o-y) in May 2026 as compared with a contraction of 1.1 per cent in May 2025, through a rise in software, transport, and business services. ## Aggregate Supply (Page 24) 1. The cumulative southwest monsoon rainfall (up to July 20) has been below normal with skewed (uneven) temporal (time) and spatial (location) distribution 2. Kharif season 3. As of July 17, farmers have sown crops on land equal to 59.6% (acreage) of the area that's typically sown by the *end* of the entire kharif season (full season normal area). 4. As compared to previous year, the gap in sowing area declined to 6.0 per cent from 16.0 per cent in the previous week (July 10, 2026). Here's an example: if last year, by July 17, area sown was, say 100 units, and this year by July 17 it's 94 units, the gap = (100-94)/100 = 6% below last year's level on the same date. 5. The India Meteorological Department (IMD) has forecast below-normal rainfall for July. Here "Below Normal" means the IMD expects rainfall to fall between 90% and 95% of the historical average. 6. Govt procured 562 lakh tonnes by July 20, 2026 , which is 5.5% higher than *the same point* in the previous season (KMS 2024-25). Rice procurement also running ahead of last year, but the paragraph doesn't mention a specific target for rice like it did for wheat. 7. One lakh = 100,000, and 1 million = 10 lakh = 10,00,000. So 357.6 lakh tonnes = 35.76 million tonnes, and 562 lakh tonnes = 56.2 million tonnes, and 1 tonne is 1000 kgs. 8. Chart III.6 mentions names of 3 agencies for data: 1. MoAFW = Ministry of Agriculture and Farmers Welfare, which is the primary source for food grain production data, crop sowing/acreage figures, and agricultural statistics generally. 2. MoSPI = Ministry of Statistics and Programme Implementation - India's central statistical agency, source for macro data like GDP, Index of Industrial Production-IIP, CPI/inflation, and other official statistics. 3. CMIE (Centre for Monitoring Indian Economy) = a private data and analytics firm (and is not a government firm). It publishes widely used for economic data like employment/unemployment rates, corporate finance data, etc. 9. **Crop Seasons in India:** | Stage | Kharif | Rabi | | ----------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | Sowing period | June to July, right when the first monsoon rains start. | October to December, as the monsoon retreats and temperatures cool down. | | Growing phase | July to September, under warm and humid weather. | December to March, requiring cool weather during growth and warm conditions for ripening. | | Harvesting period | September to October (stretching into November in some areas). | March to May (spring/early summer). | | Water dependency | Mainly rain-fed, needing a lot of water from the southwest monsoon | Mainly irrigation-fed (canals, tube wells) and retreating/northeast monsoon rains, requiring light, timely watering. | | Crops | Cereals and millets: Rice (paddy), maize, jowar (sorghum), bajra (pearl millet), and ragi. Pulses: Arhar (tur/pigeon pea), moong dal, and urad dal. Oilseeds: Soybean, groundnut, castor, and sesame. Cash crops: Cotton, sugarcane, and jute | Cereals: Wheat, Barley, OatsPulses: Gram (Chickpea), Lentil (Masoor), Peas Oilseeds: Mustard (Rapeseed), Linseed, Safflower Spices and Vegetables: Coriander, Cumin, Fenugreek, Potato, Onion, Garlic | 10. The Ministry of Statistics and Programme Implementation (MoSPI) released the [Index of Services Production (ISP)](Index%20of%20Services%20Production%20(ISP).md)[base year: 2024–25] on July 14, 2026 on trial basis. ## Inflation 1. gg 2. The National Statistical Office (NSO) of India was formed by merging ==the **Central Statistics Office (CSO)** and the **National Sample Survey Office (NSSO)**== on May 23, 2019 ### REER - Chart IV.18 1. Chart IV.18.a - Here Change in REER is the **month-on-month % change relative to the previous month's REER**, and not against the base year. Base year (2015-16=100) is just the index's origin point, so the bars show sequential MoM changes. 2. Chart IV.18 b - Decomposition change = nominal effect + relative price effect. Here let us try log change. 3. So we decompose change by growth rate of 2 REER and taking log of both sides. Example: We consider two REER readings with a single country so as: $\dfrac{85 \times 103}{91 \times 105}$ (prev) and $\dfrac{87 \times 105}{93 \times 108}$ (new) $\text{NEER}_\text{prev} = \dfrac{85}{91} = 0.9341$, $\text{NEER}_\text{new} = \dfrac{87}{93} = 0.9355$ $\text{Price}_\text{prev} = \dfrac{103}{105} = 0.9810$, $\text{Price}_\text{new} = \dfrac{105}{108} = 0.9722$ Nominal effect (log): $\ln\left(\dfrac{0.9355}{0.9341}\right) = \ln(1.00152) = 0.00152$ Price effect (log): $\ln\left(\dfrac{0.9722}{0.9810}\right) = \ln(0.99110) = -0.00894$ Sum = total REER change (log), check: $0.00152 + (-0.00894) = -0.00742$ $\ln\left(\dfrac{\text{REER}_{\text{new}}}{\text{REER}_\text{prev}}\right) = \ln\left(\dfrac{0.90950}{0.91627}\right) = \ln(0.99261) = -0.00743$ So here nominal effect = +0.152%, price effect = −0.894%, total REER change = −0.743% (depreciation), which is exactly RBI's chart (b) logic, that is, two log-terms adding exactly to the diamond point (total change). $\Delta \ln(\text{REER}) = \Delta \ln(\text{NEER}) + \Delta \ln(\text{Relative Price})$ Step 1 - Define growth rate $g$ as the actual % change (as decimal) $g = \dfrac{\text{X}_\text{new} - X_\text{old}}{X_\text{old}} = \dfrac{X_\text{new}}{X_\text{old}} - 1$ Step 2 - Rewrite this as: $\dfrac{X_\text{new}}{X_\text{old}} = 1 + g$ Step 3 - Now take the log difference which is exactly $\Delta \ln X$: $\Delta \ln X = \ln(X_\text{new}) - \ln(X_\text{old}) = \ln\left(\dfrac{X_\text{new}}{X_\text{old}}\right) = \ln(1+g)$ Step 4 - We apply your known approximation $\ln(1+x) \approx x$ for small $x$: $\Delta \ln X = \ln(1+g) \approx g$ So: $\Delta \ln X \approx g$ , that is, the log-difference is approximately equal to the actual % growth rate itself (as a decimal). Multiply by 100 to express as a percentage. Step 5 - Check with our dummy NEER numbers: $g = \dfrac{0.9355}{0.9341} - 1 = 0.001498 = 0.1498\%$ $\Delta \ln(X) = \ln\left(\dfrac{0.9355}{0.9341}\right) = 0.001497 = 0.1497\%$ Nearly identical (0.1498% vs 0.1497%) because $g$ is small here. So we computed $\Delta \ln X$, and it just happens to numerically equal (almost exactly) the real % change, which is why RBI's chart can label the log-based bars as "%" without it being misleading. ### WPI Base Year Revision 1. The base year for Wholesale Price Index has been revised to 2022-23 from 2011-12 by the Ministry of Commerce and Industry. On June 15, 2026, the new series with provisional data for the month of May 2026 alongside the back series from April 2023 to April 2026 was released. 2. A detailed note on [Inflation](Inflation.md)