Indian economic recovery entered consolidation phase in January: ICRA

After registering strong growth in December, the economic indicators suggest loss of momentum in January, with the recovery in Indian economy entering a consolidation phase, rating agency ICRA has said.

"The Indian economic recovery appears to have entered into a consolidation phase in January 2021, with a varied YoY growth performance across the early economic indicators. A majority of these lost steam in January 2021, relative to December 2020, partly because of an unfavourable base effect, supply-side issues and price hikes, marking a contrast to the improvement in sentiment brought on by the rollout of the COVID-19 vaccines," ICRA Principal Economist Aditi Nayar said.

However, ICRA does not see the fall in economic indicators as a sign of alarm regarding the sustainability of the recovery. "However, we do caution that the pace of underlying growth in the Indian economy remains subdued, and do not foresee a sharp ramp-up in the pace of GDP expansion in Q4 FY2021," Nayar said.

Also read: India's GDP to expand 0.8% in Q3, FY22 growth seen at 8.5%: Barclays

ICRA projected India's GDP to grow 0.7 per cent in October-December and by 2.6 per cent in January-March. Hit by the COVID-19 pandemic and the nationwide lockdown imposed by the government in late March last year to control the spread of infections, India's GDP contracted 23.9 per cent in April-June and 7.5 per cent in July-September quarter.  

ICRA said 9 of the 15 economic indicators, including passenger vehicle output, vehicle registration, generation of GST e-way bills and petrol consumption, recorded a weakening in year-on-year (YoY) performance in January 2021 as compared to December 2020.

"In contrast, six indicators witnessed an improved YoY performance in January 2021, relative to December 2020, namely non-oil exports, electricity generation, rail freight traffic, scooter production, diesel consumption and domestic airline traffic," the rating agency said in a release.

The number of indicators displaying a YoY contraction rose to five in January 2021 from three in December 2020, with passenger vehicle production, vehicle registration and Coal India Ltd (CIL) output getting added to the list. "The former two reflect supply-side issues related to availability of semi-conductors and price hikes, while the dip in CIL's performance reflects a fading of the base effect."

Based on this, ICRA projected India's industrial output, measured by the Index of Industrial Production (IIP), to grow by a muted 0.5-2 per cent in January 2021 as against a 1 per cent growth in December 2020.

Also read: 'GDP to grow at 13.5% in FY22; economic activity on verge of normality': Nomura