India’s recovery has entered the consolidation phase since January: ICRA


India’s economic recovery has entered a consolidation phase during the first month of 2021, as the pace of improvement in a number of leading indicators slowed down compared to December, according to rating agency .

The annual performance of about nine of the 15 indicators tracked by ICRA weakened compared to the improvements seen in December on account of a fading of the favourable base effect, supply-side issues and price hikes, the agency said in a report on Tuesday.

“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,” said Aditi Nayar, principal economist at ICRA, adding, “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.”

Indicators like passenger vehicle (PV) sales, vehicle registrations and Coal India’s (CIL) output showed a year-on-year contraction, according to the agency, while year-on-year growth in petrol consumption, ports cargo traffic, generation of Goods and Services Tax e-way bills, bank credit and deposits for January was slower compared to the previous month.

On the other hand, six indicators including non-oil exports, electricity generation, rail freight traffic, scooter production, diesel consumption and domestic airline traffic showed improvements in January over their annual growth in December.

“The most meaningful appear to be the substantial improvement in growth of non-oil exports to 11.5% in January 2021 from 5.6% in December 2020, as well as the pick-up in electricity generation to 6.5% from 5.1%, respectively, which took place despite an unfavourable base effect,” the report said.

Based on this data, ICRA estimated the Index of Industrial Production growth to remain muted at 0.5-2% in January against 1% a month earlier.

The rating agency projected growth in the ongoing quarter at 2.6%, modestly building on the 0.7% growth it estimated for the third quarter of FY21.

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