The Indian economic recovery appears to have entered a consolidation phase in January, with a varied performance across the early economic indicators, according to ICRA’s January review of the Indian economy. A majority of these displayed a loss of growth momentum in the month relative to December 2020, partly because of an unfavourable base effect, supply side issues and price hikes, marking a contrast to the improvement in sentiment brought on by the rollout of the COVID-19 vaccines.
“We do not construe the dip in volume performance in January 2021 as a sign of alarm regarding the sustainability of the growth recovery.
However, we do caution that the pace of underlying growth in the Indian economy remains subdued, and do not foresee a sharp ramp up in the pace of GDP [gross domestic product] expansion in Q4 FY2021,” the report said.
As many as nine of the 15 high frequency indicators recorded weakening of their year-on year (YoY) performance in January relative to December 2020. In contrast, six indicators witnessed an improved YoY performance. Amongst these, the most meaningful appear to be the substantial improvement in growth of non-oil exports to 11.5 per cent in January from 5.6 per cent in December last.
Based on the available data, we project the growth in the index of industrial production (IIP) to remain subdued at 0.5-2.0 per cent in January (+1.0 per cent in December 2020). We expect the technical recession in the Indian economy to have ended with a mild 0.7 per cent GDP growth in real terms in the third quarter of this fiscal.