Inflation Relief, IIP Boost to Support India’s Economic Growth

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