India’s Economic Fundamentals Remain Strong

India’s headline inflation softened to 6.7% in Jul’22 primarily due to softening of food prices. The increase in fuel inflation despite government measures to curb domestic petrol and diesel prices taken a few months ago, is a concerning factor. 

Currently, the global crude and commodity prices have corrected, this should further soften inflation in India in the coming months. However, rupee depreciation which increases the import costs and the fall in crop yields due to uneven monsoon this year poses near term risk to inflation in India.

Industrial production (IP) softened in Jun’22 primarily due to seasonal slowdown in mining output owing to monsoon. There has been a marginal slowdown in output in almost all the segments including manufacturing. 

However, the consumer goods and consumer durables output has sequentially picked depicting improving demand conditions in the economy. Currently, while the key developing economies are hinting at a recession, India’s economic fundamentals are continuing to remain strong. 

Going forward, India’s growth trajectory is more likely to improve as the capacity utilization levels are improving which could boost investments.”