Benign inflation along with strengthening factory output to aid India’s economic recovery in 2021, says GlobalData

Following the release of the data on India’s Index of Industrial Production (IIP) for June 2021, in the backdrop of recovery of economic activities;

Gargi Rao, Economic Research Analyst at GlobalData, a leading data and analytics company, offers her view:

“Relaxation of COVID-19 restrictions, resumption of demand conditions and low base due to strict lockdowns implemented during March-May 2020 resulted in the IIP rising at a robust rate of 50.4% (Y-o-Y) at an average during March-June 2021. Rebound in business activities along with the easing of COVID-19 restrictions in several states resulted in a 13.6% (YoY) increase in India’s industrial production as of June 2021 compared to 29.2% rise in May and nearly 134% in April 2021. With visible green shoot in factory output and other economic indicators, GlobalData forecasts the Indian economy to grow by 9.2% in 2021.

“During the April-June quarter, the mining output increased by 27.4% and electricity generation increased by 16.8%. On the other hand, the overall IIP grew by 45% against a contraction of 35.6% in the same quarter last year. Rising sales and factory orders rose amid uptick in domestic and external demand, which contributed to increase in manufacturing output in June 2021.

“Meanwhile, retail inflation eased to 5.59% in July 2021 due to decline in food prices and improvement in supply chain. With inflation rate at a comfortable zone, Reserve Bank of India (RBI) is expected to keep the interest rates low to boost investments and aid sustained recovery of the economy. Retail inflation coupled with increasing factory output may boost the economic activity, which will generate jobs and accelerate domestic demand in the coming months.

“RBI adopted judicious policy measures to counter the economic fallout of the COVID-19 pandemic, with its easy monetary policy through various measures like open market operations. It had kept the policy rate unchanged at 4% in its August meeting and projects the economic growth at 9.5% for FY22.

“With pickup in economic activity, GlobalData forecasts unemployment rate to decline to 8.31% in 2021 compared to 10.38% in 2020. Higher employment opportunities are expected to increase purchasing power of households and real household consumption expenditure is forecasted to grow by 10.2% in 2021 compared to -8.7% in 2020.

“However, the uncertainty over the COVID-19 and the news of the possible COVID-19 third wave casts a shadow on the economic recovery. On the policy front, the RBI must continue with prudent monetary support to maintain ample liquidity, which will aid investments.”

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