India’s index of industrial production (IIP) increased from 4.7% year-over-year (YoY) in December 2022 (revised up from 4.3% reported earlier) to 5.2% YoY in January 2023. The headline print narrowly exceeded market expectations, with most consensus projections calling for a recovery of approximately 5%.

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

Improvement in the headline IIP index for January 2023 was supported by a healthy all-encompassingness of industrial activity in all subsectors. The tightening of global financial conditions and ongoing geopolitical instability, however, continue to be a source of concern and have begun to show through a decline in manufacturing exports.

Concerns about the strength of the rebound in fiscal (FY) 2024 are also raised by the slow pace of private capex recovery and predictions of a slowdown in urban consumption. Overall, we continue to predict that GDP would increase by 7.0 percent in FY2023 and 6.0 percent in FY2024.

As a result of loosening COVID limitations in China and other countries, the International Monetary Fund (IMF) revised up its prediction for global GDP growth for 2023 by 20 basis points (bps) to 2.9%. According to the analysis, this represents a 50-bps decrease from the projected 3.4% increase in 2022 while also easing global inflation pressures.

Near-term downside risks to industrial activity include recent weakness in domestic merchandise exports and ongoing sluggishness in the pace of private capex recovery. Although urban consumption is still strong, the RBI’s quick monetary tightening since April 2022 is expected to temper economic impulses as lending rates begin to catch up. Considering these variables, GDP growth is predicted to decrease from 7.0% in FY2023, to 6.0% in FY2024.