Encouraged by increase in foreign trade, industrial activity in the country improved in December and the uptrend is likely to continue for the first few months of 2014, a report has said.
ZyFin Research's Business Cycle Indicator (BCI), which reflects various macroeconomic trends on a monthly basis, has registered 4.7 per cent growth in December 2013 compared to the same period in the previous year.
The BCI had improved by 4.2 per cent in November on year-on-year basis.
According to ZyFin, a financial research company, if this uptick extends for two more months, a more sustainable growth can be expected in industrial activity in India.
The company has projected 2014 "to start with a moderate expansion in industrial activity".
BCI is an independent, real-time indicator of the Index of Industrial Production (IIP), providing an estimate of the IIP two months prior to the release of official data. A continuous uptrend for three months in BCI signifies an improving business cycle and vice versa.
As per ZyFin, an improvement in BCI for December was led by improving foreign trade statistics, slight decline in petrol import bill and forex reserves, among others.
However, the firm added that continuing downtrend in key real economic variables like production of pig iron, aluminium and electricity, declining domestic air passenger traffic and constricted money supply had restricted further growth.
"This will lead to rising inventory and excess capacity," ZyFin added.
Noting that recovery in consumer demand is essential for a sustained economic growth, the firm said consumption will "remain subdued in the near term".
"There have been some early indications of improvement in consumer demand as measured by ZyFin's Consumer Outlook Index for December," ZyFin Research Vice President (R&D) Debopam Chaudhuri said.
"If this trend sustains in the near future, the looming risk of rising inventory can be averted lending itself into a steep recovery in industrial activity," Chaudhuri added.