India's economic recovery entered into consolidation phase in January 2021: Credit Rating agency ICRA

The Credit Rating agency, ICRA said that India's economic recovery has entered into a consolidation phase in January 2021.

The agency said that six indicators have witnessed an improved YoY performance in January 2021, relative to December 2020, namely non-oil exports, electricity generation, rail freight traffic, scooter production, diesel consumption and domestic airline traffic.

It added that the growth indicators continue to promise upward and sustainable economic recovery. The annual performance of about nine of the 15 indicators tracked by ICRA weakened compared to the improvements seen in December on account of a fading of the favourable base effect, supply-side issues and price hikes, the agency said in a report on Tuesday.

Aditi Nayar, the principal economist at ICRA said, "We do not construe the dip in volume performance of a majority of the lead indicators in January 2021 as a sign of alarm regarding the sustainability of the growth recovery." She added, "However, we do caution that the pace of underlying growth in the Indian economy remains subdued, and do not foresee a sharp ramp up in the pace of GDP expansion in Q4 FY2021."

As per the agency, Indicators like passenger vehicle (PV) sales, vehicle registrations and Coal India's (CIL) output showed a year-on-year contraction, while year-on-year growth in petrol consumption, ports cargo traffic, generation of Goods and Services Tax e-way bills, bank credit and deposits for January was slower compared to the previous month.

On the other hand, six indicators including non-oil exports, electricity generation, rail freight traffic, scooter production, diesel consumption and domestic airline traffic showed improvements in January over their annual growth in December.

The report said, "The most meaningful appear to be the substantial improvement in growth of non-oil exports to 11.5 per cent in January 2021 from 5.6 per cent in December 2020, as well as the pick-up in electricity generation to 6.5 per cent from 5.1 per cent, respectively, which took place despite an unfavourable base effect."

Based on this data, ICRA estimated the Index of Industrial Production growth to remain muted at 0.5-2 per cent in January against 1 per cent a month earlier. The agency has projected growth in the ongoing quarter at 2.6 per cent, modestly building on the 0.7 per cent growth it estimated for the third quarter of the financial year 2020-21.