The retail inflation in India persisted above 4% throughout the fiscal year 2024, with the consumer price index indicating a marginal decrease in food inflation to 4.85% in March 2024 from 5.09% in the previous month. On the other hand, industrial activities displayed signs of stability, with the index of industrial production (IIP) witnessing a notable increase to 5.7% in February 2024, marking a four-month high.
Economic Indicators
The official data released recently aligns with the Reserve Bank of India’s (RBI) projections outlined in the first bi-monthly monetary policy for FY25. Despite forecasting robust GDP growth at 7% for the fiscal year, the RBI remains vigilant over inflation, estimating it at 4.5% for the full year and 4.9% for the first quarter.
RBI Stance
RBI Governor Shaktikanta Das emphasized the need for sustained efforts to mitigate inflationary pressures, drawing parallels to the previous years’ challenges. The monetary policy committee of the RBI maintains a target of 4% for retail inflation with a variation band of 2% on both sides.
Persistent Food Inflation
Food inflation remained a concern in March, with consumer food price index-based inflation remaining high at 8.52%, marginally lower than the previous month. Analysts highlight the challenges posed by food and beverage inflation, which stood at 7.68% in March.
Market Expectations and RBI’s Response
Analysts anticipate that the inflation data is unlikely to significantly influence the RBI’s policy decisions. Despite market expectations, the RBI is unlikely to follow the Federal Reserve’s rate actions, given the current macroeconomic stability. However, favorable banking liquidity conditions may persist, ensuring easy financial conditions.
Economic Outlook
ICRA estimates food and beverage inflation to remain above 7% in April 2024, emphasizing the importance of a favorable monsoon to mitigate inflationary pressures. The uptrend in international crude oil prices poses additional risks to the CPI inflation outlook.
Industrial Production Analysis
The disaggregated data for IIP reveals a mixed trend, with consumer durables contracting by 3.8% and intermediate goods registering robust growth. Infrastructure and intermediate goods displayed a significant year-on-year expansion in February 2024, while capital goods output remained subdued.
Projected Growth
Overall, the IIP grew by 5.9% between April and February 2024, with analysts expecting further growth in March. Based on available data, ICRA anticipates a year-on-year IIP growth of approximately 4.5-5.5% in March 2024, driven by favorable factors such as a low base effect from the previous year.
Conclusion
The economic indicators reflect a nuanced landscape, with persistent challenges in food inflation and fluctuations in industrial production. As policymakers navigate through these complexities, sustained efforts to ensure macroeconomic stability and promote growth remain paramount.
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