DOUBLE WHAMMY

With factory output declining and retail inflation rising, it is likely that the RBI will continue with its hawkish monetary policy at its next review on December 18.

Data released on Thursday showed that retail inflation surged to 11.24 per cent in November (10.17 per cent in October).

Factory output contracted in October to 1.8 per cent, though this was partly because of the base effect — in October 2012, IIP growth was at a multi-month high of 8.2 per cent.

The disappointing numbers could push the apex bank to institute another 25-basis-point-hike in the repo rate — the third in a row. (The repo rate is the rate at which the central bank lends money to commercial banks.)

Poor show

During the month under review, industrial performance was weighed down by poor performance in both manufacturing and mining sectors.

While manufacturing contracted 2 per cent (against an expansion of 9.9 per cent), mining declined 3.5 per cent (down 0.2 per cent).

The weaker-than-expected industrial performance in October 2013 has cast a shadow on hopes of a turnaround in industrial activity in the second half of the current fiscal year.

On the inflation front, the focus is now on the wholesale price index (WPI)-based inflation numbers, which will be released on Monday.

INDUSTRY WORRIED

Apex industry bodies were quick to describe the country’s macroeconomic situation as “quite grim” and called for “effective and decisive” policy interventions.

Commenting on the October IIP figures, Chandrajit Banerjee, Director-General, CII, said contraction in industrial growth, especially at the threshold of the third quarter, is “disappointing”.

“CII fully appreciates the RBI’s compulsions to keep inflation under check. However, it is also important that the RBI takes cognisance of the steep slide in industrial production and revert to the accommodative monetary policy to revive demand,” he said.

Simultaneously, efforts should be made to ensure that structural bottlenecks and other hurdles that constrain investment even when projects have been approved are removed, Banerjee said.

According to economists, the poor performance was expected because of the base effect and given that the eight core industries, which account for 38 per cent of the IIP, had contracted 0.6 per cent in October, the lowest since February 2013.

srivats.kr@thehindu.co.in

(This article was published on December 12, 2013)
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