Factory output growth remained in positive territory for the third consecutive month in June, lending some credence to recent optimism that the Indian economy was on the cusp of a recovery.

However, the Index of Industrial Production (IIP) for June came in at a lower-than-expected 3.7 per cent as against the revised May 2014 level of 5 per cent (from 4.7 per cent).

The mining sector’s growth remained largely flat at 4.3 per cent in June, but manufacturing disappointed at 1.8 per cent.

Electricity generation grew by a robust 15.7 per cent. Given the good performance by the core sector, some upside was expected in the June IIP numbers.

But the 23.4 per cent contraction in consumer durables (use-based classification) weighed on the overall IIP even as capital goods rose 23 per cent.

While the latest IIP data is below expectations, the overall first-quarter performance has been positive, with a growth rate of 3.9 per cent.

Factory output had contracted 1 per cent in the first quarter of the last fiscal year.

Industry view Reacting to the IIP numbers, Confederation of Indian Industry (CII) Director-General Chandrajit Banerjee said industrial production, which had been on the rise for the last two months, declined in June on the back of a sluggish performance by the manufacturing sector.

“However, we would like to see this as an aberration, as CII’s own Business Outlook Survey and the ASCON survey are showing early signs of an industrial turnaround,” he said. With proper interventions in the areas of land, labour and environment norms, manufacturing can post a quick revival, he said.

Retail inflation Retail inflation continued to be a picture of worry, with the spike in fruit and vegetable prices leading to July CPI (Consumer Price Index) inflation rising to 7.96 per cent against 7.46 per cent in June 2014.

Rural CPI inflation for the month under review stood at 8.45 per cent and urban inflation, at 7.96 per cent.

But the latest CPI-based inflation is much lower than the 9.64 per cent level recorded in the same month last fiscal year.

High food prices Vegetable prices were up 16.88 per cent in July 2014 on a year-on-year basis, while fruit prices had shot up 22.48 per cent.

Overall food inflation in July came in at 9.36 per cent, higher than the 8.05 percent in the previous month. It was, however, lower than the 11.22 per cent recorded in July 2013.

Commenting on the latest CPI inflation print, Anis Chakravarty, Senior Director of Deloitte in India, said this was expected owing to the delayed onset of the monsoon.

He also said the targeted nominal CPI anchor, at 6 per cent, may be difficult to achieve given that current supply-side issues are expected to continue.

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