The two most recent bits of data released by the government suggest that the Indian economy still has some growth momentum left and that inflation is tapering off.
Wholesale price inflation has dropped from 12.6% in the first week of August to 12.1% in the last week. And industrial production grew at an annual rate of 7.1% in July, against the consensus forecast of 6%.
But hasty conclusions are unwarranted. Inflation is still way outside the Reserve Bank of India’s comfort zone and the relatively strong rise in industrial production is largely due to the 22% jump in the production of capital goods. It is still not clear whether this is because of a statistical quirk, or because of a few large projects.
Though industrial output in July has been better than expected, average growth over the first four months of this fiscal year is much lower compared with what it was in the previous year. Our overall sense is that there is a mild slowdown on, not a sharp drop in growth.