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13th February 2024 (9 Topics)

Twin Boost for India’s Economy

Context

The Indian economy showed signs of resilience at the beginning of the year as industrial output rose and inflation fell, as per latest data.

Inflation

  • December inflation fell to 5.1% from 5.7% in November, aided by a slower rise in prices of food items like cereals, milk and milk products, fruits, pulses and spices.
  • It still remains above the central bank’s target of 4%, but has stayed within its tolerance range of 2-6% for the fifth consecutive month.
  • Overall, food inflation fell to 8.3% in January, down from 9.53% in December, which saw a sharp rise in prices of vegetables and other food items such as pulses, spices and cereals.
  • Food inflation, measured by the consumer food price index, accounts for nearly half of the overall consumer price basket.
  • It stood at 8.7% in November, 6.61% in October and 6.62% in September.
  • Government intervention: Earlier, high inflation levels had prompted the government to take supply-side measures such as releasing substantial cereal stocks from reserves while proactively managing the imports and exports of pulses to ensure supplies.
    • The government had also restricted exports of rice and sugar to tame inflation.

Factory Output

  • Factory output measured in terms of the Index of Industrial Production (IIP) rose by 3.8% in December 2023 against 5.1% in December 2022.
  • Output in manufacturing rose 3.9% annually, mining 5.1%, and power 1.2%.
  • Capital goods production, a proxy for fixed investments in the economy, rose by 3.2% annually in December.
  • Consumer durables production, which highlights consumer sentiment, also rose 4.8% on an annual basis during the month. 

Key-Terms

  • Inflation is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.
  • Food inflation is the rise in the price of food commodities. Rise in cost of production and MSP are the main drivers of cereal inflation, while inflation in milk, vegetables, and meat and fish are driven by input cost inflation and positive demand supply gap.
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