According to figures released on Friday, the Indian economy endured a double blow as the year came to an end: industrial output declined and inflation spiked.

According to the statistics ministry, consumer price index (CPI)-based inflation increased 5.69% in December, the quickest rate in four months, while industrial output growth dropped to an eight-month low of 2.4% in November.

Factory output increased 6.4% from April to November of this fiscal year, slightly more than the 5.5% number during the same period last year, despite signs of a slowdown in manufacturing growth momentum in November.

High levels of inflation highlight the central bank’s cautious approach to interest rate setting and hint to potential government action to limit price increases.

The biggest monthly increase in retail inflation since August 2023 occurred in December when it increased to 5.69% from 5.55% in the previous month. It’s interesting to note that, out of April through December 2023, December had the highest monthly retail inflation rate, followed by July and August. July had the highest monthly inflation rate of 7.4% in 15 months because of a sharp increase in the price of vegetables and other food items like cereals, pulses, and spices.

The government had previously taken supply-side measures to safeguard supplies, such as releasing significant reserves of wheat and aggressively monitoring the import and export of pulses. These actions were spurred by the previous high levels of inflation. To control inflation, the government also imposed export restrictions on sugar and grains.

For the fourth consecutive month, December’s CPI inflation was above the Reserve Bank of Japan’s 4% target but still fell within its tolerance range of 2-6%. Retail inflation was reported to reach 5.7% in December 2022. Retail inflation was predicted by 19 economists surveyed by Mint to reach 5.9% in December.

The consumer food price index, which represents about half of the total consumer price basket, is used to measure food inflation. It increased to 9.53% in December from 8.70% in November, 6.61% in October, and 6.62% in September.

In November 2022, industrial output as indicated by the Index of Industrial Production (IIP) increased by 7.6%. Mining output increased by 6.8%, electricity by 5.8%, and industrial output increased by 1.2% year over year in November.

In November, the economy’s measure of fixed investments, capital goods production, shrank by 1.1% yearly. Concurrently, the month saw a 5.4% annual decline in consumer durables output, a measure of consumer mood.

In November of 2023, the growth rate of the industrial output every month was the lowest of all the months. The industrial output growth rate, which was 4.61% in April of this fiscal year, kept up its momentum and saw double-digit growth in August and October due to the growth in mining output, the festive demand for manufactured goods, and the production of electricity. In November, however, the growth rate fell to its lowest level of the year.

According to Rajani Sinha, chief economist at CareEdge, “month-over-month contraction seen in the manufacturing and electricity sectors further constrained the overall IIP growth, even though an unfavorable base resulted in a broad-based growth moderation.”

Food inflation surged to a four-month high of 9.53%, driving the sequential increase in retail inflation. Fruits, vegetables, legumes, and spices lead the food inflation. The good news regarding inflation in general and food inflation specifically is that following a 15-month pause, cereal, and product inflation dropped to single digits for the sixth consecutive month, according to a statement from India Ratings. “Core inflation has declined to 48 months low of 3.89% in December 2023. Declining core inflation during a period of robust economic expansion is paradoxical,” it continued.

Riding on the back of the manufacturing sector’s rise, data released in November showed that the Indian economy exceeded forecasts to register an astounding 7.6% growth in the September quarter. As a result, the Reserve Bank of India (RBI) revised its FY24 growth prediction from an earlier estimate of 6.5% to 7%.

According to the government’s initial advance forecasts, which were made public last month, India’s GDP would increase by 7.3% in FY24 thanks to strong output in the manufacturing, construction, and certain services sectors as well as continuous investment development.

In the first preliminary estimates, the finance ministry stated strong domestic consumption and investment propelled GDP growth in the first half of FY24.

Except the pandemic year of FY21, Private Final Consumption Expenditure (PFCE) increased by 4.5% in H1, reaching a record high of 60.4% of GDP.

Vegetable and pulse inflation in December was 27.64% and 20.73%, respectively, significantly higher than the 17.70% and 20.23% observed in November.

Inflation for “food and beverage” increased to 8.70% in December from 6.24% in October and 8.02% in November.

The states with the slowest retail inflation rates were Delhi (2.95%) and Jammu & Kashmir (4.15%), whereas the states with the fastest rates of rice price increases were Odisha (8.73%), Gujarat (7.07%), and Haryana (6.72%).

India is facing problems, including slower global growth and demand, at the same time that manufacturing operations are slowing down. Due to the impact on Indian exports, export growth has been modest and the trade deficit has been significant in recent months.

International agencies and the RBI, however, have increased their estimates for India’s growth in FY24 due to higher-than-expected consumption.

The World Bank and the International Monetary Fund (IMF) predict 6.3% growth in the Indian GDP in FY24.

SOURCE: https://www.livemint.com/news/india/factory-output-powers-down-in-nov-food-fuels-inflation-in-dec-11705085568462.html#:~:text=While%20industrial%20output%20growth%20fell,December%2C%20the%20statistics%20ministry%20said.