DNA Money Edit: Inflation is byproduct in India's industrial push

A day after commerce ministry announced the highest monthly growth in eight core industries in November, India's factory activity has reported the fastest growth in five years in December. Buoyed by increase in output and new orders, Nikkei Manufacturing Purchasing Managers' Index showed a steady growth. The PMI, compiled by IHS Markit, rose to 54.7 in December from November's 52.6, marking its fifth straight month above the 50 level. Anything above 50 means expansion and below, contraction.

Surely, India's industrial activities are on the recovery path, with operating conditions improving at the strongest pace since December 2012. Healthy business performance, supported by fastest expansions in output and new orders, and stronger market demand are pointing to the revival in the country's industrial economy.

Amid increasing demand from domestic and international markets, there is a lurking fear about inflation going up. Stronger demand has allowed firms to raise prices at the fastest pace in 10 months to make up for rising input costs. This means the overall inflation could remain above the Reserve Bank of India's medium-term target of 4% in the near future. The retail inflation has already surged to 4.88% in November, the fastest month-on-month increase in 16 months, primarily driven by rise in fuel inflation and soaring vegetable prices.