Factory output slows in October to 2.2%

Our Bureau PTI New Delhi | Updated on January 09, 2018


Risks to Indian steelmakers' margins are relatively lower due to regulatory protection

Food prices drive retail inflation to15-month high

Industrial output slowed in October while retail prices shot up in November, raising doubts over expectations of a recovery in the second half of the financial year.

Data released on Tuesday showed that factory output slowed to a three-month low of 2.2 per cent in October, with negligible growth in mining and subdued expansion in manufacturing and electricity.

The Index of Industrial Production (IIP) grew 4.14 per cent in September, and 4.2 per cent in October 2016. The slowest growth before this was in July, when it grew 2.2 per cent.

Meanwhile, retail inflation breached the central bank’s limit and shot up to a 15-month high of 4.88 per cent in November, against 3.58 per cent a month earlier, led by rising food prices.

Consumer food price index inflation jumped up to 4.42 per cent in November, against 1.9 per cent in October.

The economy grew by 6.3 per cent in the second quarter and the Finance Ministry hopes it will do better in the coming quarters with the impact of demonetisation and Goods and Services Tax (GST) wearing off.

On a cumulative basis, the IIP grew by just 2.5 per cent between April and October this year, against 5.5 per cent in the same period a year ago.

The mining sector grew by 0.2 per cent in October, manufacturing production expanded by 2.5 per cent and electricity generation rose by 3.2 per cent. “In terms of industries, 10 out of 23 industry groups in the manufacturing sector have shown positive growth during October 2017,” said an official release, adding that the sharpest growth was in pharmaceuticals, motor vehicles and computers.

In terms of use-based industries, primary goods grew 2.5 per cent in October while capital goods rose by a robust 6.8 per cent. Similarly, infrastructure or construction goods also grew 5.2 per cent.

However, consumer durables contracted by 6.9 per cent in October though consumer non-durables grew 7.7 per cent. The muted growth was partly due to an unfavourable base effect.

“Manufacturing activity slowed in October as inflows of new orders stagnated even as negative effects from implementation of GST continued to dampen demand,” said industry chamber Assocham while remaining optimistic about a recovery.

But analysts are concerned over slowing growth combined with rising inflation.

Transient issues

Consumer price index based inflation inched close to 5 per cent in November driven by higher food and fuel prices. Retail price of vegetables shot up by 22.48 per cent in November, against 7.47 per cent in October. “Some of the factors driving the uptick in the retail inflation in November 2017 would prove to be transient, especially the spike in vegetable prices,” said Aditi Nayar, Principal Economist, ICRA.

“Additionally, the impact of the reduction in GST rates on a number of items may pass through into retail prices and inflation in the coming weeks.”

Published on December 12, 2017

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