Inflation is slowly cooling, but it is still above the benchmark set by the Reserve Bank of India. The welcome news is that Industrial Output grows by 7.1% partly due to an upsurge in the manufacturing sector and it constitutes 77.63 percent of the index.

Capital gains which are a benchmark for investments saw a considerable rise of 16.4% in December 2017, as correlated to a slump of 6.3% a year before. The customer nondurables which is mainly comprised of fast flowing consumer durables also recorded a robust 16.6% against consumption of 0.2%

Indian economy on the rise

Commenting on the IIP data, Assocham feels that the burgeoning domestic market will serve as the engine for growth for the Indian economy by providing a steady flow of businesses.

However, there are reservations due to the geopolitical scenario. The US is increasingly becoming protectionist, and this will have an impact on the recovery of external debts.

Double-digit growth in both capital and fast moving consumer durables is a welcome sign, but still, it must be noted that IIP grew at a slower pace of 7.1 % in December from the revised estimates of 8.8% in November. Estimates put November growth at 8.4%, Infrastructure and construction grew at 6.7% against 13.89%in November.

Besides, one must not forget the low growth of 2.4% a year ago due to demonetization.

Gross value added growth is likely to be 6.8% in the third quarter up from 6.1% in the preceding September quarter. Growth, manufacturing, and services have aided the surge.

Retail inflation also fell to 5.07% in January, and this happened partly due to an easing of prices of vegetables, fruits, and fuel. Prices of consumer foods eased 4.7% in January as compared to 4.96% in December, fuel eased by 7.73% as compared to 7.90% in December, and vegetables eased at 26.97% as against 29.13 in December.

Fruits also increased at a moderate speed of 6.24% last month, as against 6.63% reported in the previous month. The quarterly report which is prepared by the National Council of Applied Economic Research (NCAER), registered an increase of 9.1% in January, after weakening for two back-to-back quarters.

RBI could hike interest rates if inflation balloons

16 industry groups out of 23 showed positive growth in December 2017 as compared to the same period the previous year. These figures are crucial for the advance forecasts of GDP for 2017-2018 which will be released by the end of February.

Central Bank is not expected to cut lending rates, and retail inflation is likely to hover around 5% in the January –March quarter, and CPI reading could be around 6% this summer. If the results do not improve in 2H-FY19 a rate hike in the later period is possible.

The investors who have taken the brunt of Prime Minister Narendra Modi's expansionary budget, are waiting to see the outcome of the RBI meetings which is due on February 21 to get to know the direction of interest rates in the coming month.

The steep rise observed in the capital goods area is a distinct indication that investments have picked up speed.

A good Monsoon could ease inflation

The RBI is contemplating an upward revision in inflation for the next six months. The possibility of any rate tinkering is bleak. Inflation could again balloon in the coming months if there is a fuel hike. However, the chances of a rate hike in the next six months are low.

Another factor which will have a bearing on the inflation will be the monsoon. Food inflation is the biggest villain, and with elections in 2019, the Modi government could not risk it. A good monsoon will keep the food inflation at moderate levels.