IIP cheer: Factory output zooms 8.4% in November

Surabhi New Delhi | Updated on January 12, 2018

But retail inflation inches up to 5.21% in December; hopes of rate cut fade

Ahead of the Union Budget 2018-19 next month, latest official data paints mixed picture of the economy as factory output hit a 25-month high in November 2017 though retail prices were much above the central bank’s inflation target in December.

The Index of Industrial Production (IIP) grew by 8.4 per cent in November last year, led by double digit growth of 10.2 per cent in manufacturing.

IIP grew by 1.99 per cent in October last year and by 5.1 per cent in November 2016.

On a cumulative basis, factory output rose by 3.2 per cent between April and November 2017 as against 5.5 per cent in the corresponding period in 2016.

The data come soon after the first advance estimates of national income that pegged GDP growth at 6.5 per cent this fiscal but forecast a recovery in the second half.

This is also the final set of macro-economic data with Finance Minister Arun Jaitley as he prepares for the Union Budget on February 1.

However, the sectors of both mining and electricity remained subdued and grew by 1.1 per cent and 3.9 per cent respectively in November.

“Fifteen out of the 23 industry groups in the manufacturing sector have shown positive growth in November,” said an official statement, adding that the sharpest growth was in pharmaceuticals and computer manufacturing.

In a signal of improving investments, production of capital and infrastructure goods in the use-based classification registered robust growth in November.

Capital boost

Capital goods expanded by 9.4 per cent in November while infrastructure or construction goods expanded by 13.5 per cent.

Meanwhile, primary goods grew by 3.2 per cent in the month and intermediate goods by 5.5 per cent.

Though consumer durables expanded by 2.5 per cent in November, consumer non-durables shot up by 23.1 per cent in the month.

Jaitley has expressed hope of a recovery in the economy after demonetisation and the goods and services tax but analysts are still cautious about the outlook beyond the third quarter.

“Terming this as industrial recovery will be too early. In August and September 2017, IIP growth was more than four per cent, however, in October 2017 it fell to two per cent. Nonetheless, it is an encouraging number and has to be watched closely for another two months to term it as recovery,” said DK Pant, Chief Economist, India Ratings.

Retail inflation

Retail inflation climbed to a 17-month high of 5.21 per cent in December as food items became dearer and dashed hopes of further monetary easing.

The retail inflation, based on Consumer Price Index (CPI), was 4.88 per cent in November. In December 2015, it was 3.41 per cent.

Under the Monetary Policy Framework, the Reserve Bank of India is expected to keep inflation at 4 per cent, plus or minus 2 per cent.

“Given that the Monetary Policy Committee responded to the period of transient ‘low’ inflation with only one rate cut of 25 basis points in August 2017, we do not expect it to commence hiking rates unless the CPI inflation is forecast to persist above 5 per cent for at least two quarters,” said Aditi Nayar, Principal Economist, ICRA, attributing the spike in CPI inflation to a sharp jump in inflation for housing and a base-effect-led uptick in food inflation.

Consumer food price inflation rose to 4.96 per cent in December as against 4.35 per cent in the previous month.

Eggs, vegetables and fruits became costlier, while inflation moderated in the case of cereals and pulses

Published on January 12, 2018

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