Robust IIP data points to manufacturing revival

Industrial activity is yet to fully stabilise after the twin disruptions of the note-ban and GST.

CPI falls marginally to 5.07% in January; industrial activity in Dec grows at 7.1%

New Delhi, February 12

Retail inflation cooled slightly in January this year while factory output in December grew at a robust pace, indicating sustained recovery in industrial activity after the twin disruptions of demonetisation and GST implementation.

The index of industrial production (IIP) grew 7.1 per cent in December 2017, led by robust growth in manufacturing. It had expanded at a faster 8.8 per cent in November last year, but grew by just 2.4 per cent in December 2016.

The Centre is betting on higher growth in the second half of the financial year, in line with the advance GDP estimate of 6.5 per cent.

Data released on Monday showed that IIP grew 3.7 per cent on a cumulative basis between April and December 2017, against 5.1 per cent in the corresponding period in 2016.

In December 2017, the manufacturing sector clocked the sharpest growth at 8.4 per cent, followed by electricity generation, at 4.4 per cent. The mining sector grew by just 1.2 per cent. Significantly, the capital goods sector, a barometer for investments, grew a sharp 16.4 per cent, against a fall of 6.2 per cent a year ago.

Similarly, indicating a revival in consumer demand, consumer durables grew 0.9 per cent compared to a decline of 5 per cent in December 2016. Consumer non-durables also grew 16.5 per cent, against a contraction of 0.2 per cent in the year-ago period.

Meanwhile, the primary goods sector grew 6.2 per cent in December 2017, while intermediate goods expanded by 6.2 per cent and infrastructure goods increased by 6.7 per cent.

“...sixteen of the 23 industry groups in the manufacturing sector have shown positive growth,” said an official release, adding that the sharpest increase was seen in manufacture of transport equipment, pharmaceuticals and computer and electronic products.

Analysts attributed a part of the robust growth in IIP to a favourable base effect. “These trends support our view that a part of the spike in manufacturing growth in November 2017 was a catch-up because of the muted volumes in the earlier months of the fiscal, which would ebb away,” said Aditi Nayar, Principal Economist, ICRA.

Retail inflation

Consumer price index based inflation marginally cooled to 5.07 per cent in January from 5.21 per cent in the previous month as items such as vegetables, fruits and fuel components became cheaper. Retail inflation was 3.17 per cent in January 2017.

It, however, remained above the central bank’s target of 4 per cent and analysts expect prices to remain high for the rest of the fiscal.

Inflation in the consumer food price index was 4.7 per cent in January 2018, against 4.96 per cent in December, and 0.61 per cent in January 2017. For the fuel and light segment, inflation was 7.73 per cent last month, against 7.90 per cent in December.

Analysts said the higher house rent allowance, increase in MSP, and rising commodity prices have implications for inflation. “The inflation and inflationary outlook suggest that RBI is likely to remain in a pause mode at least during the first half of 2018 and, if warranted, may take a view in the second half,” said Sunil Sinha, Principal Economist, India Ratings & Research.

Published on February 12, 2018

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