Sequential momentum in IIP was moderately strong at 0.8 per cent month-on-month (MoM) in January 2023, building on the 5.7 per cent MoM expansion recorded in the previous month, and broadly in line with the average expansion of 0.7 per cent MoM usually seen in the month of January, according to a report by Acuite Ratings and Research.

India’s industrial production index rose to 5.2 per cent YoY in January 2023, beating market consensus and with moderate MoM momentum. However, growth impulses have weakened due to geopolitical uncertainty, leading to a weakness in manufacturing exports. The pace of private capex recovery is also sluggish, which is a concern for recovery strength in FY2024.

The healthy momentum in headline IIP index for January 2023 was accompanied by improvement in the breadth of industrial activity across all sub-sectors. However, weakening of growth impulses due to tightening of global financial conditions and persistent geopolitical uncertainty continue to be a matter of concern and has started to reflect through a weakness in manufacturing exports.

In addition, a subdued recovery in the pace of private capex along with expectations of a moderation in urban consumption pose concerns about the strength of the recovery in fiscal (FY) 2024. Overall, we maintain our GDP growth forecast of 7.0 per cent in FY2023 and 6.0 per cent for FY2024.

While the International Monetary Fund (IMF) revised up its forecast for world GDP growth by 20 basis points (bps) for 2023 to 2.9 per cent owing to easing COVID restrictions in China and moderating global inflation pressures, it marks a 50-bps deceleration vis-a-vis 2022 growth of 3.4 per cent, the report added.

Recent weakness in domestic merchandise goods exports and continued sluggishness in the pace of private capex recovery are downside risks to industrial activity from a near term perspective. Although urban consumption is holding up, rapid pace of monetary tightening undertaken by the RBI since April 2022 is anticipated to moderate growth impulses as lending rates start catching up.

Taking these factors into account, GDP growth is expected to slow down to 6.0 per cent in FY2024 from 7.0 per cent in FY2023.

Fibre2Fashion News Desk (NB)