The Indian
economy now seems to be on its way to recovering from disruptions caused by
demonetisation and roll-out of goods and services tax as consumer inflation
fell more than expected and industrial output growth remained strong, providing
a twin boost to the economy.
According to
Central Statistics Office (CSO) data released, consumer inflation in India
eased to 4.44 per cent in February from 5.1 per cent in the previous month.
Meanwhile the Industrial Production (IIP) for December expanded to 7.5 per
cent in January from 7.1 per cent in the previous month.
India’s GDP
growth picked up pace in the quarter ended December as manufacturing and
agriculture growth improved after twin disruptions of the note ban and the
Goods and Services Tax.
The IIP
growth in January this year was mainly on account of uptick in manufacturing
sector which constitutes 77.63 per cent of the index. It grew by 8.7 per cent
during the month as compared to 2.5 per cent in January 2017, showing signs of
recovery in the economy.
Capital
goods, a barometer of investments, showed a sharp increase in output by 14.6
per cent in January, 2018 as against a decline of 0.6 per cent year ago .Consumer
non-durable goods, which are mainly fast moving consumer goods, too showed an
increase of 10.5 per cent as against a growth of 9.6 per cent. Consumer durable
goods recorded a growth rate of 8 per cent in January 2018 against a
contraction of 2 per cent a year ago. However, the mining sector saw a flat
growth of 0.1 per cent compared to 8.6 per cent a year ago.
On the other
hand, India’s inflation rate stood lower than the Reserve Bank of India’s
5.1 per cent estimate for the January-March period, giving the central bank
room to keep interest rates on hold for longer.
Economists
and RBI expect inflationary pressures to gather steam in coming months. The
central bank expects inflation to reach 5.1-5.6 per cent in the first half of
the financial year starting 1 April, before easing in the second half. The RBI
targets inflation over the medium term at 4 per cent with an upper limit of 6
per cent and a lower threshold of 2 per cent.
As the
country is entering into a new fiscal, key macroeconomic indicators show a
strong turnaround of the economy after being disrupted by the implementation of
the GST and demonetisation. This twin boost to the economy suggests that
overall economic growth could accelerate further from the five-quarter high
recorded in the October-December period.
Latin Manharlal Group
