Monday, 16 April 2018

Healthy Economic Data Underpins India’s Revival

Broad-based economic recovery and lower inflation are helping in painting a bright outlook picture of the Indian economy that is retaining the fastest-growing Asian economy tag, on the back of GST and banking reforms.

According to the data released by the statistics office, consumer inflation, the benchmark price gauge of the RBI, cooled to 4.28 per cent in March from 4.44 per cent in February, easing to a five-month low. 
As per the latest data, this is the third consecutive month where inflation softened after hitting a 17-month high of 5.2 per cent in December. Asia’s third-largest economy is facing a decline in inflation amid cooling food prices as food inflation or CPFI numbers saw a negative growth of 0.44 per cent in March.

While inflation has stayed above the Reserve Bank's medium-term target of 4.0 per cent, March’s data is an indication that prices are at a safe distance from the apex bank’s upper tolerance level of inflation at 6 per cent India’s monetary policy committee, in its bi-monthly meeting last week has kept rates steady since a cut of 25 basis points in August, and it is widely expected to maintain rates at their current level in the next review due on June 6.

Last week, the RBI brought down its January-March (2017-18) inflation projection to 4.5 per cent from 5.1 per cent. It also slashed CPI inflation for 2018-19 to 4.7-5.1 per cent in April-September 2018-19 and 4.4 percent in the next half of the year, including the impact of house rent allowance.

However, economists expect that the inflationary pressure is likely to remain tilted to the upside and may hover around the 5 per cent mark in the current financial year. Expected risks may arise from fiscal slippage, higher input costs and MSP (minimum support price) hikes, while financial sector volatility with respect to the normalization policy in the US is expected to cause further tension.

Meanwhile, the CSO data revealed that the Index of Industrial Production (IIP) rose to 7.1 per cent in February 2018 from 7.5 per cent in January.

As per the IIP data, the sequential slowdown in factory output was mainly on account of lower production in the mining sector. On a year-on-year basis, the manufacturing sector expanded by a healthy 8.7 per cent, while the mining sector's output dipped by (-) 0.3 per cent and the sub-index of electricity generation increased by 4.5 per cent.

Economic indicators continue to reflect the Indian growth story. Going forward, improvement in private consumption, increase in capacity utilization and private capex cycle revival will be driving higher growth for the Asia’s third largest economy. Rising farm output, coupled with higher minimum support prices announced by government are likely to improve both farm incomes and rural consumption.

Latin Manharlal Group

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