Data released on Friday unveils a challenging economic scenario for India as the year concluded, with a simultaneous slowdown in industrial output and a notable spike in inflation.
The statistics, revealed by the Ministry of Statistics and Programme Implementation, indicate that industrial output growth plummeted to an eight-month low of 2.4 per cent in November.
This concerning figure comes as consumer price index (CPI)-based inflation surged to 5.69 per cent in December, marking its fastest pace in the past four months.
Despite the November data reflecting a deceleration in manufacturing growth momentum, the April-November period of the fiscal year witnessed a 6.4 per cent expansion in factory output, slightly surpassing the 5.5 per cent figure from the previous year.
The acceleration in inflation, particularly retail inflation rising to 5.69 per cent in December from 5.55 per cent in the preceding month, underscores the Reserve Bank of India’s cautious stance on interest rates. This surge prompts speculation about potential government measures to curb the escalating prices.
Notably, during the April-December 2023 period, December reported the highest monthly retail inflation after July and August. July marked the peak with an inflation rate of 7.4 per cent, attributed to a sharp increase in prices of vegetables, pulses, spices, and cereals.
The government, in response to earlier elevated inflation levels, implemented supply-side measures, releasing significant cereal stocks from reserves and actively managing the imports and exports of pulses. Restrictions on the exports of rice and sugar were also enforced to temper inflation.
Despite December’s CPI inflation remaining higher than the RBI’s target of 4 per cent, it stayed within the central bank’s tolerance range of 2-6 per cent for the fourth consecutive month. A Mint poll of 19 economists estimated retail inflation to rise to 5.9 per cent in December.
Food inflation, a substantial component of the overall consumer price basket, surged to 9.53 per cent in December from 8.70 per cent in November, 6.61 per cent in October, and 6.62 per cent in September.
Meanwhile, the Index of Industrial Production (IIP), measuring factory output, recorded a 7.6 per cent rise in November 2022. However, specific sectors faced challenges, with capital goods production contracting by 1.1 per cent annually, indicating a decline in fixed investments. Consumer durables production, reflecting consumer sentiment, also contracted by 5.4 per cent on an annual basis during the month.
Economists suggest that India, despite facing a slowdown in manufacturing activities, still holds promising growth prospects compared to other emerging economies. The International Monetary Fund (IMF) and the World Bank have raised their FY24 growth projections for India, anticipating a 6.3 per cent expansion, driven by stronger-than-expected consumption.
The challenges posed by slowing global growth and consumption, coupled with muted export growth, underscore the need for strategic economic measures in the coming months.
