In a double whammy for the economy, India’s retail inflation rate shot up to a five month high in December and growth in factory output decelerated to a nine month low in November.

       Data released by the statistics department showed retail inflation rate as measured by the consumer price index rose to 5.59 per cent in December from 4.91 per cent a month ago. Growth in factory output as measured by the Index of industrial production (IIP), on the other hand, dipped to 1.4 per cent in November compared to 4 per cent in the preceding month.

       Rising pricing pressure in clothing and footwear (8.3 per cent) and fuel group (10.95 per cent) contributed to the rise in retail inflation while food inflation also rose to 4.05 per cent. For factory output, manufacturing sector growth slowed down to 0.9 per cent while mining and electricity output grew at 5 per cent and 2.1 per cent respectively.

       According to the government’s statistics department, the economy is expected to grow at 9.2 per cent in FY22, lower than the 9.5 per cent estimate by the International Monetary Fund as well as the Reserve Bank of India. The economic damage brought about by the second Covid wave in India has already been unwound, with output effectively returning to pre-pandemic levels even though contact-intensive sectors, like trade and hotels are still below pre-pandemic levels.

       However, most economists believe the official GDP data has overlooked the imminent impact of the third wave on growth momentum. With the escalating Covid-19 caseload, many states have imposed night and weekend curfews to curb the spread of the third wave, adversely impacting mobility and contact sensitive services.

       Sluggish growth momentum in the December quarter and emerging risk from the third Covid-19 wave may shave 80 basis points (bps) off India’s real gross domestic product (GDP) growth to 9 per cent for FY22, Citigroup said in its latest estimate.

       The World Bank on Tuesday while retaining its 8.3 per cent growth forecast for FY22 said easing supply disruptions related to Covid-19 and deficient demand led to a return of inflation in India toward the central bank’s target in late-2021. “In most economies, monetary and fiscal policy are expected to remain broadly accommodative in 2022, but gradually shift to a focus on fiscal sustainability and anchoring inflation expectations,” it said.