Money & Banking

Pace of underlying growth in Indian economy remains subdued: ICRA

Mumbai | Updated on February 23, 2021 Published on February 23, 2021

India’seconomic recovery appears to have entered into a consolidation phase in January 2021, with the year-on-year (y-o-y) performance of a majority of the early available economic indicators recording a loss of momentum relative to the previous month, according to ICRA.

This loss of momentum is led by a combination of factors, such as the fading of the favourable base effect, supply-side issues and price hikes.

Aditi Nayar, Principal Economist, ICRA, opined that a majority of these early economic indicators 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.

“We do not construe the dip in volume performance of a majority of the lead indicators in January 2021 as a sign of alarm regarding the sustainability of the growth 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 FY21,” said Nayar.

Per a ICRA note, as many as nine of the 15 high-frequency indicators recorded a weakening of their y-o-y performance in January 2021, relative to December 2020.

“This sub-set includes the output of the passenger vehicles (PVs), motorcycles and Coal India Limited (CIL), vehicle registrations, petrol consumption, ports cargo traffic, generation of GST e-way bills, bank credit and deposits,” the agency said.

In contrast, six indicators – non-oil exports, electricity generation, rail freight traffic, scooter production, diesel consumption and domestic airline traffic – witnessed an improved y-o-y performance in January 2021, relative to December 2020.

The number of indicators displaying a y-o-y contraction rose to five in January 2021 from three in December 2020, with PV production, vehicle registrations and CIL’s output getting added to this sub set.

Based on available data, ICRA projected the growth in the Index of Industrial Production to remain muted at 0.5-2.0 per cent in January 2021 (+1.0 per cent in December 2020).

While it expects the technical recession to have ended already, the ratings agency anticipates that the pace of GDP growth, in real terms, will strengthen only modestly to 2.6 per cent in Q4 FY21 from 0.7 per cent in Q3 FY21.

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Published on February 23, 2021
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