Post-demonetisation factory output up, retail inflation falls

Brushing off any impact of demonetisation, factory output grew 5.7 per cent in November 2016 after contracting 1.8 per cent the previous month.

Also, retail inflation eased to 3.41 per cent in December 2016, as prices of vegetables and pulses fell sharply. It was marginally higher at 3.63 per cent in November last year. Economists perceive this as an impact of demonetisation.

This is the first set of industrial indicators since the government decision to demonetise ₹500 and ₹1,000 currency notes on November 9. Finance Minister Arun Jaitley has repeatedly said the decision has not impacted economic activity though economists have cut their growth forecast for the fiscal year over concerns that the cash squeeze will impact consumption demand.

Robust growth Official data released on Thursday showed that all three sectors that constitute the Index of Industrial Production (IIP) grew at a robust pace in November though demand for consumer durables fell from the previous month.

Electricity generation registered the fastest growth, at 8.9 per cent, in November 2016, followed by manufacturing output, which jumped 5.5 per cent. The mining sector grew 3.9 per cent during the month. The sharp rise in the IIP in November was also due to the base effect, as industrial output had contracted by 3.4 per cent in November 2015.

On a cumulative basis, the IIP grew only marginally, by 0.4 per cent, between April and November 2016.

Economists, however, remained cautious about the data and said this was largely due to the base effect, pointing out that in absolute numbers, IIP in November 2016 was 175.8, which is lower than October’s 178.1.

“This indicates that factory output has actually declined sequentially. There is nothing to cheer about the November IIP growth as cumulative growth for April to November 2016 is even lower than the 3.8 per cent recorded for the same period last fiscal,” said Sunil Kumar Sinha, Principal Economist, India Ratings.

According to the use-based classification of the IIP, capital goods output, an indicator of production, grew 15 per cent in November 2016, against a contraction of 26.9 per cent in October 2015.

Retail inflation In December 2016, consumer food price inflation eased to 1.37 per cent from 2.03 per cent in November.

“Retail inflation is on expected lines, reflecting the combined effect of demonetisation and seasonality on food, particularly fruits and vegetables. However, prices of food items, such as sugar, which is in double digits, and cereals, whose prices are showing escalation, are a cause of worry,” said Sinha. He added that retail inflation was likely to remain at this level for the next two months.

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