India's recovery will continue to be supported by private consumption and investment says OPEC

OPEC stated in latest monthly update while India's major economic activities kept its positive momentum, inflation and a slowdown in industrial activities might overshadow the steady economic activities. Due to global supply chain disruptions, industrial output kept deteriorating in August, contracting by 0.8% y-o-y compared with 2.2% y-o-y growth in July. Nevertheless, the pick-up in capital infrastructure and consumer durables output continued to build momentum. India's recovery will continue to be supported by private consumption and investment. The growth might be tempered by higher inflation and an easing of external demand.

Urban demand might outdo its rural counterpart, as income flow in rural areas has shown signs of slowing down. The pace of the recovery, however, could ease given several risk factors. Downside inflation risks might appear, for example, through a depreciation of the local currency. Moreover, the recent policy rate normalization may also weaken the country's growth prospects since it could prompt the deferral of investment plans in sectors without adequate capacity utilization. However, the current repo rate remains low by historical standards.

For this update, OPEC the growth forecast for India in 2022 and 2023 remained unchanged at 6.5% and 5.6%, respectively. Potential growth might come in the form of better-than-anticipated 3Q22 growth as well as faster stabilizing for the elevated inflation rates. Downside risks include higher inflationary pressures, slower credit growth, and potentially, the deterioration of the global economy and a surge in COVID-19 cases.

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