Manufacturing drags IIP down to 4-month low in Feb

Industrial production fell to a four-month low in February as manufacturing sector lagged behind, while retail inflation hit a five-month high in March though food prices cooled down.

Data released on Wednesday revealed that the Index of Industrial Production (IIP) declined by 1.2 per cent in February. It had risen by 1.9 per cent in February last year.

The IIP data for January was also revised up to 3.27 per cent from 2.74 per cent in the provisional data released last month.

“The cumulative growth for the period April-February 2016-17 over the corresponding period of the previous year stands at 0.4 per cent,” said an official statement. The cumulative growth in IIP was 2.6 per cent for April to February 2015-16.

While mining sector grew by 3.3 per cent in February as against 5.5 per cent a year ago , manufacturing contracted by 2 per cent (0.6 per cent growth) and electricity production expanded by a mere 0.3 per cent in the month as compared to 9.6 per cent growth in February 2016.

In terms of industries, 15 of the 22 industry groups in the manufacturing sector contracted during February.

Amongst use-based classification, basic goods grew 2.4 per cent in February this year, against 5.25 per cent in January. Capital goods production, which denotes investment, however contracted by 3.4 per cent in February (10.93 per cent growth in January) and intermediate goods also contracted by 0.2 per cent (1.96 per cent contraction in January).

Consumer goods also contracted by 5.6 per cent in February with similar contraction in both durable and non-durable segments. While durable goods contracted by 0.9 per cent, non-durables contracted by 8.6 per cent in the month under review. Noting that the manufacturing sector continues to languish, Sunil Sinha, Principal Economist, India Ratings, said, “The overall macro-economic environment is conducive for growth but there are cyclical/structural factors both at the global as well as domestic level which is making the industrial/ manufacturing recovery a long drawn out process leaving one to wonder when will we reach the end of tunnel.”

Retail inflation Meanwhile, retail inflation rose marginally to 3.81 per cent in March from 3.55 per cent in February 2017. It was 4.83 per cent in March last year.

The data comes soon after the monetary policy review last week when the Reserve Bank of India had retained the repo rate at 6.25 per cent due to upside risks to inflation and excess liquidity in the system.

With analysts expecting a further rise in inflation in coming months, most are ruling out a cut in interest rates.

“Given the way inflation has panned out in recent few months… we are in for a long pause on policy rates and in case monsoon behaves abnormally then even a reversal in rate cycle,” Sinha said.

Consumer food price inflation however, eased to 1.93 per cent in March as compared to 2.01 per cent in February. Amongst food items, prices of pulses dipped by 12.42 per cent while retail inflation in vegetables contracted by 7.24 per cent.

However, in line with global trends, retail inflation in the category of fuel and light shot up to 5.56 per cent in March compared to 3.9 per cent in February.

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