Economy growth softens, inflation at RBI target levels

The big data release for the week ended February 13, 2016 was the national accounts report, which revealed that the Indian economy slowed down in the third quarter (Q3) of 2015-16 to 7.1% year on year (yoy) from 7.5% during the previous quarter. Shrinking in agricultural output and flat services growth were responsible for the slowing down of gross value added (GVA) growth, though industrial growth picked up pace. Along with Q3 numbers, the CSO also released advance estimates for 2015-16, according to which GVA growth will inch up to 7.3% during the year from 7.1% during the last year.

In contrast with the industry trends witnessed as per the national accounts report, however, the monthly Index of Industrial Production (IIP) showed a contraction for the second consecutive month in December 2015 as manufacturing and capital goods segments slowed down. Consumer goods, however, showed positive growth. In fact, the core industries component, showed a small positive growth as well.

Inflation numbers inched up to 5.7% in January 2016, but still remained below the 6% mark, which was the RBI target for the month. The achievement of the target indicates that the central bank has been able to bring inflation under control, though the future trajectory needs to be carefully watched. While the central bank kept policy rates unchanged in the bi-monthly policy meeting, the week before, it is likely that industry voices would encourage it to reduce rates further to ramp up credit offtake.

There has already been some pickup in credit growth in the fortnight ended January 22, 2016 to 11.4%, though, suggesting some return of optimism as well as the fact that the potential impact of lower interest rates might have started trickling in. Tax collections also showed healthy growth, with indirect tax collections expected to exceed budget estimates in 2015-16. 

This is an Executive Summary of the Orbis Economics's weekly report - India Macro Weekly. To know about subscription, write to orbis.economics@orbiseconomics.com