Toward the end of the year, the Indian economy faced a dual challenge with a slowdown in industrial output growth and a surge in inflation, according to data released on Friday. Industrial output growth hit an eight-month low of 2.4% in November, indicating a cooling momentum in manufacturing. Simultaneously, the consumer price index (CPI)-based inflation rose to 5.69% in December, marking its fastest pace in four months.
In November, factory output growth slowed down, with a notable contraction in capital goods production, reflecting a decline in fixed investments. The manufacturing sector reported a 1.2% annual growth, while consumer durables production contracted by 5.4%. The Index of Industrial Production (IIP) rose by 7.6% in November, reflecting a mixed performance across different sectors.
The inflation data for December revealed an uptick in CPI-based inflation to 5.69%, up from 5.55% the previous month. Food inflation, a significant component of the overall consumer price basket, rose to 9.53% in December, contributing to the overall inflationary pressures. The government had implemented supply-side measures earlier to address high inflation, including releasing cereal stocks and managing imports and exports of essential commodities.
Despite the elevated inflation levels, the Reserve Bank of India (RBI) maintained a cautious stance on interest rates, signaling potential measures by the government to curb rising prices. The December CPI inflation remained higher than the RBI’s target of 4% but stayed within its tolerance range of 2-6% for the fourth consecutive month.
The industrial output growth slowdown in November comes after a period of expansion, with a growth rate of 6.4% in the April-November period of the fiscal year. This expansion was slightly above the 5.5% figure reported in the same period the previous year. However, the monthly growth rate in November was the slowest in the April-November 2023 period.
The Indian economy’s performance in the first half of the fiscal year showcased robust growth, driven by strong domestic consumption and investment. Private Final Consumption Expenditure (PFCE) grew by 4.5%, with its share in GDP increasing to 60.4%. The finance ministry’s first advance estimates projected India’s growth at 7.3% for FY24.
International agencies, including the International Monetary Fund (IMF) and the World Bank, have raised their growth projections for the Indian economy. Despite challenges such as slowing global growth and consumption, India’s economic outlook remains positive, supported by sustained investment growth and output in manufacturing, construction, and certain services.
As the Indian economy faces headwinds, policymakers are likely to closely monitor both industrial output and inflation trends to implement measures that maintain economic stability and address emerging challenges.