Ind-Ra: IIP Growth and Inflation to Rise

As we are into the second half of FY16, there is a considerable palpitation with respect to the health of the economy. It is still not clear as to whether the Indian economy is finally back on a sustained growth path or there is still some pain left in the system. India Ratings and Research's (Ind-Ra) estimate relating to high frequency data indicates a mixed outcome.

IIP to Gain Further Strength: Ind-Ra expects the Index of Industrial Production (IIP) to grow at 7.2% in September 2015 compared with 2.6% a year ago and 6.4% a month ago. The key drivers for the August 2015 uptick in industrial output were (i) the base effect and (ii) the inventory build-up for the festival season. Ind-Ra expects both these factors to drive the IIP growth even in September 2015. The encouraging part of the industrial recovery so far this fiscal is that it is led by the manufacturing sector. The manufacturing sector growth is largely driven by domestic demand as external demand continues to be tepid. Ind-Ra expects the manufacturing sector growth to remain buoyant in the near term due to the onset of the domestic festival season.

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