Indian Economy

The factory output in April 2023 exceeded expectations with a 42 percent growth primarily due to a low base effect and improvement in the manufacturing and mining sectors. Retail inflation eased to a 25-month low of 4.25 percent in May 2023, aided by reduced food prices.

The India’s industrial output grew by 4.2 percent, rebounding from a five-month low in March 2023. While manufacturing and mining sectors showed growth of around 5 percent, electricity generation declined for the second consecutive month. The manufacturing sector’s growth was primarily driven by infrastructure and construction goods, which saw a surge of 12.8 percent, and consumer non-durables, which grew by 10.7 percent. However, consumer durables contracted for the fifth consecutive month. The overall growth in industrial production was still the second slowest in six months.

The National Statistical Office revised the Index of Industrial Production (IIP) for March, indicating a growth of 2.3 percent instead of the earlier estimate of 1.1 percent. The contraction in electricity output in April could be attributed to unseasonal rains affecting demand. The decline in consumer durables output was unexpected, as demand typically increases after the Rabi harvest season. Despite the recovery in manufacturing, the sustainability of this growth amid a global economic slowdown and its impact on external demand remains uncertain.

On the other hand, retail inflation, as measured by the consumer price index, reached a 25-month low of 4.25 percent in May. This was primarily due to easing food prices, with food inflation falling to 2.91 percent in May from 3.84 percent in April. Inflation in fuel and light also decreased to 4.64 percent from 5.52 percent in April. This decline in inflation for the second consecutive month prompted experts to anticipate a prolonged pause in the Reserve Bank of India’s policy rate stance in upcoming monetary policy meetings.

Overall, the data released by the National Statistical Office suggests an improving macroeconomic environment, with inflation decreasing and industrial production increasing. However, challenges such as the contraction in consumer durables output and persistently elevated inflation in certain segments remain.

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