India’s headline IIP growth continued to remain healthy at 11.9% YoY in Aug-21 vis-à-vis 11.6% in Jul-21. However, sequential momentum slipped with breadth of recovery getting somewhat narrower. We note that normalization in overall IIP is near complete despite few granular divergences. Going forward, while headline growth would slip into single digits as favorable statistical base effect fades, sequential momentum is likely to be healthy due to gradual unlock by states, while other enablers like public capex, monsoon, vaccination, and policy support continue to remain in place. Government’s recent decision to roll back the contentious retrospective tax laws should boost India’s investment climate along with other structural steps like the PLI Scheme. Having said so, factors like the persistence of global supply chain shocks, elevated international commodity prices, potential financial market volatility from global monetary policy normalization, and uncertainty from COVID could provide some downside risk.
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