India’s Economic Landscape: Mixed Signals in January 2024

India’s Economic Landscape: India’s economic landscape in January 2024 showcased a mixed picture, with signs of moderation in inflation alongside a pickup in industrial production. The Consumer Price Index (CPI) registered a modest decline to 5.1% year-on-year (YoY), down from 5.7% in December 2023, driven by easing food inflation and a decrease in core CPI. However, concerns persist regarding achieving sustained inflation levels of around 4%.

A Closer Look at Consumer Price Index (CPI)

The easing of headline inflation was supported by a favourable base effect and moderated food prices, although the sequential pickup in cereals inflation poses a potential challenge. It is projected that inflation will hover around 5% in February and March 2024 before averaging above 5% in the first quarter of FY25. Subsequently, a dip below 4% is anticipated in the second quarter of FY25, mainly due to base effects, followed by a gradual rise in inflation thereafter.

Industrial Production Picks Up: Insights from December 2023

December 2023 witnessed a notable improvement in industrial output growth, rising to 3.8% YoY from 2.4% in November 2023, surpassing consensus estimates. This uptick was driven by higher growth in manufacturing output, capital goods, infrastructure and construction goods, and consumer goods.

However, it’s essential to exercise caution in interpreting this as a signal of re-accelerated economic momentum, considering the inherent volatility of the Index of Industrial Production (IIP). December’s IIP data, while positive, was out of sync with core sector output data, indicating some discrepancy in the overall industrial performance.

Challenges and Caution

Despite these challenges, the manufacturing sector exhibited a significant pickup in output, expanding by 3.9% YoY in December 2023. Additionally, positive growth was observed in infrastructure & capital goods, reflecting a potential increase in government spending.

Key insights from the CPI data reveal a sequential contraction in headline inflation, with food inflation moderating to 8.3% YoY in January 2024. Fuel inflation remained in negative territory for the fifth consecutive month, while core inflation saw a marginal rise sequentially.

Sustaining industrial growth will be crucial for supporting overall economic recovery, although uncertainties remain. With expectations of continued policy support and cautious monetary measures, India aims to navigate through the complexities of domestic and global economic landscapes, striving for stability and growth.

By Anamika Singh, StraCon Business Services

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