Recent data released by the Ministry of Statistics and Programme Implementation (MoSPI) indicates that India’s economy is showing signs of improvement, with both retail inflation and industrial production moving in favorable directions.
According to the data released on April 12, India’s headline retail inflation rate fell to a 10-month low of 4.85 percent in March, down from 5.09 percent in February. This is the lowest inflation rate since May 2023, when it stood at 4.31 percent. The March inflation rate also came in slightly below the expectations of economists surveyed by Reuters, who had predicted a rate of 4.91 percent.
This positive development in the inflation rate follows the Reserve Bank of India’s (RBI) decision to keep the policy repo rate unchanged at 6.5 percent for the seventh consecutive time on April 5. The RBI’s latest forecast suggests that CPI inflation will remain at 4.5 percent for the current financial year. While the inflation rate has stayed within the RBI’s target range of 2 to 6 percent for the seventh consecutive month, it has been above the medium-term target of 4 percent for 54 months straight.
A closer look at the March CPI data shows that food inflation eased slightly, with the index coming in at 8.52 percent compared to 8.66 percent in the previous month.
In addition to the positive inflation data, India’s industrial production also witnessed a surge in February. The Index of Industrial Production (IIP) rose 5.7 percent in February, up from 3.8 percent in January. This is the highest IIP growth in four months, with the previous high recorded at 11.9 percent in October 2023.
The manufacturing sector’s output grew 5 percent in February 2024, while mining production rose 8 percent and power output increased 7.5 percent. The capital goods segment growth, however, fell to 1.2 percent in February 2024 compared to 11 percent in the year-ago period.
Consumer durables output expanded 12.3 percent in February, while consumer non-durable goods output declined by 3.8 percent. Infrastructure and construction goods reported 8.5 percent growth, and primary goods output logged 5.9 percent growth. The expansion in the intermediate goods segment was 9.5 percent in the month under review.
Overall, the IIP grew 5.9 percent during April 2023-February 2024 compared to a 5.6 percent expansion in the year-ago period.
The drop in retail inflation and increased industrial production are encouraging signs for India’s economy. The RBI’s decision to keep the policy repo rate unchanged and its forecast of inflation remaining within the target range are also positive developments. However, the fact that inflation has been above the medium-term target for an extended period suggests that continued efforts are needed to keep it in check while simultaneously fostering industrial growth.