Indian economic growth on strong footing despite global headwinds

Amidst the global economic uncertainty and the looming fear of recession in major economies worldwide, the Indian economy is showing resilience according to recent data from the Consumer Price Index (CPI) and Index of Industrial Production (IIP). Inflation based on the CPI index for the month of July stood at 6.71%, a 5-month low whereas IIP for the month of June recorded an index of 137.9, a record high for the month of June in the current series. While the world is grappling with the fear of recession and struggling to control inflation, recent data indicates that not only inflation is moderating in the country but industrial activities are also picking up pace after the shock from the pandemic and thereafter the conflict in Europe.

Consumer Price Index (CPI)

CPI rate for the month of July was recorded at 6.71%, a 5-month low but still above the upper limit of the Reserve Bank of India's (RBI) inflation target range of 6%. Out of the total 25 components whose inflation data was released, in 13 commodities inflation rate was reported above the RBI’s upper limit of 6%. In components such as spices, footwear, fuel & light, and vegetables, CPI inflation was reported at double-digit for the reporting month of July. The inflation was highest in spices at 12.89% followed by footwear at 11.89%, fuel and light at 11.76%, and vegetables at 10.9%. The Consumer Food Price Index grew 6.75% which is also a 5-month low.

Consumer Price Indices (CPI) measure change over time in the general level of prices of goods and services that households buy for the purpose of consumption with the base year (2010-11) price set to 100.

RBI, in order to maintain price stability, has been given an inflation target mandate of not less than?2% and not more than 6%. For the last seven months since January, India's CPI inflation has been above the upper band of the RBI’s inflation target rate of 6%. To counter the rising inflation, RBI has raised the policy rate from 4% to 5.4%.??

Index of Industrial Production (IIP)

The IIP data for the month of June was released along with the CPI data. IIP is a composite economic indicator that measures the short-term changes in the volume of production of a select basket of industrial products with respect to the production of a chosen base year -2011-12, taken as 100. it is a measure of the performance of industrial production within an economy over a specified time period. It is released by the Ministry of Statistics and programme Implementation every month with a 6-week lag.

The IIP index for June recorded 137.9 with a 12.3% year-year growth rate. So, in simple words, it means that industrial output for June 2022 is 12.3% more than what it was for June 2021. Among all the 23 industries covered under IIP, only the textile and pharmaceutical industries' production has shown a negative growth of -3% and -4.1% compared to June 2021. Manufacture of tobacco products, beverages, computers, electronic and optical products has performed the best with 53%, 45% & 44% year-on-year growth. Nine out of the 23 Industries are still to reach their pre-pandemic level of industrial production

Conclusion

The IIP and CPI data indicate that the Indian industrial activity has not only recovered from the negative pandemic shock but also seems to be little affected by the global economic slowdown. Inflation seems to be moderating and is expected to be back to the target range by December 2022. Foreign Portfolio Investments (FPI) have also been net positive for the last couple of months. These macro-economic data points suggest that India's economic growth is on a strong footing despite global headwinds.??