India Macro Weekly: Industry expands, inflation continues to fall

The week ending January 14, 2017, showed positive trends for the Indian economy across indicators:
  • Inflation based on consumer prices fell to a fresh two year low of 3.4% in December 2016, even though core inflation remains somewhat elevated.
  • Industrial production grew by a strong 5.7% in November 2016. While a base effect has played a role in pushing up overall growth, the turnaround in capital goods’ as well as consumer goods’ production is still quite noteworthy. While industrial production has likely benefited from the festival season in the early part of the month, some growth in external demand has made a contribution.
  • Which brings us to, the third development: as per the latest foreign trade report, India’s merchandise exports continued to grow for the fourth consecutive month in December 2016, and as an ostensible endorsement of bettering domestic demand, imports grew for the third month running as well.
  • However, customs duty collections remain relatively weak, suggesting that there is much room for improvement in foreign trade. This is despite the fact that, fourth, indirect tax collections grew by a robust 25% in April-December 2016, on account of steady growth in central excise collections, as well as service tax collections. Growth in indirect taxes far outstripped growth in direct tax collections over the period, as corporate tax collected remained weak.


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