A few economic data were released recently that showed the rate at which India’s economy rebounded slowed down, while retail inflation increased weighing on the country’s growth. Both manufacturing and services sectors were affected by rising input costs.
Even data released by the country’s statistics agency as well as surveys done by private agency showed that the manufacturing sector which contributes about 16% to the Indian economy grew at a slower pace in November and December.
Let’s take a look at the key economic indicators that were released.
Consumer Price Index
India’s inflation based on Consumer Price Index (CPI) rose to 5.59% in December 2021 from 4.91% in the previous month due to higher food prices. Consumer Food Price Index (CFPI) jumped to 4.05% in December from 1.87% in November 2021.
Though CPI numbers were within RBI’s target range of 2-6%, retail inflation was the highest since July 2021, when it had also come in at 5.59%. Most Analysts expect inflation to be elevated around in 5.5-6% range till April 2022.
Index of Industrial Production
The country’s industrial growth based on the Index of Industrial Production, slowed down to 1.4% in November 2021 compared to a contraction of 1.6% in the year-ago period, according to data released by the country’s statics agency. IIP growth for November 2021 is the lowest in the past nine months.
In November 2021, output of all three sectors, which contribute to industrial production, such as the manufacturing, mining, and electricity grew at a slower pace on a yearly basis.
Mining sector grew by 5% in November compared with a contraction of 5.4% in the same month last year.
Meanwhile, manufacturing sector growth was weak at 0.9% in November as against a negative growth of of 1.6% in the same period last year.
IHS Markit survey showed that the manufacturing sector performed well during the month of December, although the rate slowed down.
The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) stood at 55.5 in December 2021, compared with 57.6 in November 2021. Moreover, the latest quarterly reading was at 56.3, its highest since the final quarter of fiscal year 2021, the IHS report noted.
Input cost inflation softened to three-month low, but remained above its long-run average. Output charges rose as some companies transferred higher cost burdens to clients. Employment fell fractionally due to a lack of pressure on capacity. Higher sales underpinned a further upturn in production and companies made efforts to restock their inventories.
Indian services sector continued to register strong growth of sales and business activity in December. According to IHS Markit report, the seasonally adjusted India Services Business Activity Index stood at 55.5 in December 2021, compared with 58.1 in November 2021.
The December number was still consistent with a marked rate of economic expansion. The upturn in the service sector was associated with improving market conditions and accommodative demand.
The overall rate of inflation in the service sector softened to a three-month low, however, sentiment remained subdued in the context of historical data as several firms were concerned about price pressures and the possibility of new waves of COVID-19.
Underlying data suggested that the latest increase in new orders in the service sector was centred on the domestic market, as new business from abroad fell further. The decline in international demand was linked to COVID-19 restrictions, especially around travelling.
Meanwhile, private sector firms in India recorded a further rise in output during December 2021, despite the pace of expansion easing to a three-month low. The Composite PMI Output Index slipped from 59.2 in November to 56.4 in December, but remained above its long-run average of 53.9.
December data pointed to a broad-based decline in employment at goods producers and service providers. At the composite level, jobs decreased for the first time in four months.
Both manufacturing and services activities rose at slower rate, but continued to recover and remained strong in the historical context.