New Delhi: India’s economy showed mixed signals in October and November 2023, as retail inflation rose above the Reserve Bank of India’s (RBI) target level, while industrial output reached its highest level since June 2022.
According to the latest official data released on Tuesday, India’s retail inflation, based on the Consumer Price Index (CPI), increased to 5.55 percent in November 2023, up from 4.87 percent in October 2023, which was the lowest level in five months. The CPI inflation was far from the RBI’s medium-term target level of 4 percent, but it was within the tolerance limit of 2-6 percent.
The main driver of the inflation was the rise in food prices, which increased by 8.7 percent in November 2023, compared to 6.61 percent in October 2023 and 4.67 percent in November 2022. The National Statistical Office (NSO) data showed that the prices of vegetables, eggs, meat, fish, pulses, and edible oils increased significantly in November 2023.
The RBI, which has been tasked by the government to ensure retail inflation remains at 4 percent with a margin of 2 percent on either side, projected the CPI inflation at 5.4 percent for 2023-24, with a reading of 5.6 percent in the third quarter and 5.2 percent in the last quarter. The RBI also kept the key policy rates unchanged in its monetary policy announced last week, citing the need to support the economic recovery amid the uncertainty caused by the COVID-19 pandemic.
On the other hand, India’s industrial output, based on the Index of Industrial Production (IIP), grew by 11.7 percent in October 2023, according to the official data released separately on Tuesday. This was the highest growth rate recorded by the IIP since June 2022, when it grew by 13.6 percent.
The IIP growth in October 2023 was mainly due to the good performance of the manufacturing, mining, and electricity sectors, which grew by 10.4 percent, 13.1 percent, and 20.4 percent respectively. The IIP also benefited from the low base effect, as the factory output had contracted by 4.1 percent in October 2022 due to the impact of the second wave of COVID-19.
The IIP grew by 6.9 percent in April-October 2023, compared to 5.3 percent growth in the same period a year ago. The NSO data also showed that the capital goods, consumer durables, and consumer non-durables segments, which are indicators of investment and consumption demand, grew by 9.1 percent, 14.5 percent, and 9.8 percent respectively in October 2023.
The strong growth in industrial output suggested that the economic activity was picking up pace in the second half of 2023-24, after a moderate recovery in the first half. However, the rising inflation posed a challenge for the RBI and the government, as it could erode the purchasing power of the consumers and affect the growth prospects.