Macro Economy

Revival in private investment is key to boosting industrial output: Ind-Ra

Venkatesan R | | Updated on: Jan 17, 2018

The normal monsoon so far has raised expectations that food inflation will moderate in coming months and cool the overall inflation.

Industrial output will not return to a sustained and high growth path as long as there is excess capacity in the manufacturing sector and private investment fails to pick up, India Ratings and Research (Ind-Ra) said.

Although two consecutive months of positive growth in the index of industrial production (IIP) are encouraging, Ind-Ra believes that it is still too early to expect an improvement and stability in industrial growth.

Industrial output grew 2.1 per cent in June and 1.1 per cent in May. Ind-Ra’s assessment is that food inflation despite a favourable monsoon could surprise on the upside, especially with regard to kitchen items such as potato, tomato, onion, milk, egg, pulses — as has been the case in the past.

Manufacturing output

The retail and wholesale inflation for July came in at 6.07 per cent and 3.55 per cent, respectively. Manufacturing output increased to 0.9 per cent year-on-year in June 2016, from 0.6 per cent in the previous month. “Such a marginal increase in manufacturing does not generate confidence that the downtrend in manufacturing has been reversed,” Ind—Ra said. The capacity utilisation in manufacturing has been hovering in the range of 70—75 per cent now for nearly five years, it added.

Inflation, both retail and wholesale, surprised on the upside, reinforcing upside risks to the inflation trajectory emphasised upon by the central bank, it said.

The normal monsoon so far has raised expectations that food inflation will moderate in coming months and cool the overall inflation.

Ind-Ra said an analysis of food inflation data over the past 6-7 years suggests that nothing has managed to tame food inflation. “The goalpost shifts each time food inflation surprises on the upside. It has become routine to put the blame on the failure of monsoon, unseasonal rainfall, the futures market in agricultural commodities and sometimes on hoarding and black,” it said.

Published on August 17, 2016
COMMENTS
This article is closed for comments.
Please Email the Editor

You May Also Like

Recommended for you