Industrial output grew at the fastest pace in 17 months to 8.4% in November
India’s industrial output growth and headline retail inflation registered the highest growth since July 2016, in what was among the last crucial set of economic data before the Union Budget 2018-19. Data released on Friday showed that the Index of Industrial Production (IIP), after slowing for two straight months, bounced back in November, rising by 8.4% and signalling that industrial revival was back on track. Meanwhile Consumer Price Index(CPI)-based inflation for December rose by 5.21%, compared with 4.88% in November and 3.41% in December 2016. The divergent trends, with robust industrial data and high inflation numbers, indicate that the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) may not go for an interest rate cut in the foreseeable future, with some analysts indicating there could even be a rate hike. “A rate cut by the RBI can be ruled out; and based on the trajectory in the next few months, a rate hike could be the next rate action. But it would be status quo in February,” said Madan Sabnavis, chief economist, CARE Ratings. Finance Minister Arun Jaitley presents the 2018-19 Budget on February 1. The only two major datasets yet to be released by the Centre are monthly wholesale inflation and trade data. The IIP growth “has been driven by a combination of restocking by companies and a more vibrant demand in certain sections,” Sabnavis said. He added that the cumulative IIP growth for this fiscal year is now at 3.2%, compared with the same period last year. Sabnavis expects the IIP growth for the year at 4.5%. The IIP growth in November was fuelled by a 10.2% rise in the manufacturing sector from the low 2.2% in October. The manufacturing sector constitutes more than three-fourth of the IIP. However, within the manufacturing segment, 15 of the 23 sub-groups recorded a contraction, compared to 13 in the previous month. Before this, industrial production growth in the country had slowed to a revised 1.99% in October, from the 4.1% in September, after rising to a nine-month high of 4.5% in August. In November, the other major sub-sectors of electricity and mining rose by 3.9% and 1.1%, respectively.
Capital goods production showed a rising trend for the fourth straight month. Its growth rate rose to a high 9.4%, from the 6.5% rise seen in the previous month of October. It is possible that investments (gross fixed capital formation, or GFCF) may grow by a faster pace than what was estimated in the Advance Estimates. In the Advance Estimates, GFCF is estimated to grow at 4.5% in FY18. This translates to a cumulative growth of 5.9% in the third (Q3) and fourth quarter, up from 4.7% in the second quarter (Q2). But capital goods, which is a principal indicator used to estimate GFCF, has grown by eight% in Q3 so far, up from 4.8% in Q2. Thus, as capital goods maintains its trajectory, it is quite likely that Q3 estimates, which will be released in February, will show a higher investment growth. “Manufacturing growth is expected to remain robust in December 2017, benefiting from a favourable base effect as well as the robust expansion displayed by sectors such as automobiles. However, the subdued performance of electricity generation and the output of Coal India may weigh upon the growth of mining and electricity in December 2017,” said Aditi Nayar, principal economist with Icra. On possible MPC action, Nayar said that unless retail inflation persists above five% for two quarters, a rate hike is not expected. The RBI has been asked by the government to keep inflation at four%, plus or minus two%. CPI inflation for December shot up on the back of a rise in prices of food items, eggs, and vegetables. Inflation for the food basket (CFPI) increased to 4.96% in December, from 4.42% in the preceding month. The data revealed that eggs, vegetables, and fruits became costlier, while inflation moderated in case of cereals and pulses. The starkest jump was for vegetables, which shot up 29% year-on-year, while the steepest fall was for pulses and products, which fell 23%.
First Published: Fri, January 12 2018. 19:51 IST