Suresh Prabhu
Minister of Commerce and Industry
There is something to cheer about as far as economy is concerned. The industrial production after a long gap soared to 17-month high of 8.4 per cent in November. The jump in factory output was mainly on account of performance of the manufacturing sector which has suffered on account of the twin impact of demonetization and roll out of the Goods and Services Tax (GST). This was accompanied by over 12 per cent increase in exports during December. However, the euphoria generated by the robust performance of factory output was dampened by Consumer Price Index (CPI) numbers which showed firming up of the retail inflation to 17-month high of 5.2 per cent in December. The continuous rise in consumer inflation, it is feared, may prompt the Reserve Bank to hold on the interest rate as it is mandated to keep inflation within 4 per cent. The RBI is scheduled to present its monetary policy review on February 7. The review itself will be announced within days of the presentation of the Union Budget on February 1. According to the Index of Industrial Product (IIP) data, the manufacturing sector, which constitutes 77.63 per cent of the index, recorded an impressive growth of 10.2 per cent in November as compared to 4 per cent a year ago. Among the sectors, pharmaceuticals, computer, electronic and optical products and automobiles posted good performance during the month. Capital goods output, which is a barometer of investment, too grew at a higher rate of 9.4 per cent in November as against 5.3 per cent a year ago. As regard retail inflation, it crossed the RBI's comfort level and rose to 5.21 per cent in December on rise in prices of food items, egg and vegetables, dashing hopes of interest rate cut in the near future. The retail inflation, based on the CPI, was 4.88 per cent in November 2017. In December 2016, it was 3.41 per cent. The RBI has been asked by the government to keep inflation at 4 per cent, plus or minus 2 per cent; and its rise beyond the comfort zone will put pressure on the central bank to decide against interest rate cut. As per data released by the Central Statistics Office (CSO), inflation for the food basket increased to 4.96 per cent in December from 4.42 per cent in the preceding month. The previous high of CPI-based inflation was recorded at 6.07 per cent in July 2016. Similarly, the previous high industrial output growth was recorded at 8.9 per cent in June 2016. Data suggests that eggs, vegetables and fruits became costlier. The factory output, measured in terms of IIP, grew 5.1 per cent in November 2016. Meanwhile, the IIP growth for October 2017 has been revised downwards to 2 per cent from the provisional estimates of 2.2 released last month. Consumer non-durables, which are mainly fast moving consumer goods (FMCG), showed an output growth of 23.1 per cent in November 2017 as
against 3.3 per cent in the comparable month of 2016. However, the mining sector production growth slowed to 1.1 per cent during the said month from 8.1 per cent a year ago. Electricity generation growth too slowed to 3.9 per cent in November from 9.5 percent a year earlier. Production growth of consumer durables, mainly white goods like TVs, refrigerators and washing machines, also slowed to 2.5 per cent from 6.8 per cent. As per the use-based classification, the growth rates in November 2017 are 3.2 per cent in primary goods, 5.5 per cent in intermediate goods and 13.5 per cent in infrastructure/ construction goods. In terms of industries, 15 of the 23 industry groups in the manufacturing sector have shown positive growth during November 2017 as compared to the same month a year ago. The data showed that the industry group 'Manufacture of pharmaceuticals, medicinal chemical and botanical products' has shown the highest positive growth of 39.5 percent, followed by 29.1 per cent in computer, electronic and optical products and 22.6 percent in 'manufacture of other transport equipment'. The other positive news was with regards to the exports which witnessed an impressive increase during December. Propelled by engineering goods and petroleum sectors, India's exports rose 12.36 per cent to USD 27.03 billion during the month. The rising export, however, was accompanied by trade deficit which touched a 3-year high figure. As per the data released by the commerce ministry, the trade deficit or difference between imports and exports was USD 14.88 billion, up about 41 per cent year-on-year. It was mainly on account of surge in imports, which rose 21.12 per cent to USD 41.91 billion on increased inbound shipments of crude oil and gold. One can, however, still take comfort from the fact that the exports, as asserted by FIEO, could surpass USD 300 billion mile stone during the current financial year ending March. "Exports have been on a positive trajectory since August 2016 to December 2017 with a dip of 1.1 percent in the month of October 2017," the Commerce Ministry said in a statement. Exporters' body FIEO said that positive growth for the second month in a row, after a fall in October, shows resilience of the Indian exporters. "Since we have already achieved exports worth USD 224 billion in first 9 months of the fiscal and global trade growth remains robust in 2018, we are on our course to achieve the milestone of USD 300 billion in 201718," said FIEO President Ganesh Kumar Gupta. The exports had totaled USD 274.64 billion in 2016-17, up from USD 262.29 billion in the preceding industry. As per the commerce ministry data, exports of engineering goods as well as petroleum products showed an increase of over 25 per cent in December. However, shipments of ready-made garments declined by 8 per cent to USD 1.33 billion last month. Gold imports surged by 71.5 per cent to USD 3.39 billion last month as against USD 1.97 billion in December 2016. The imports of petroleum products and crude oil increased by a significant 35 per cent to USD 10.34 billion in December, from USD 7.66 billion a year ago. Cumulative value of exports for April-December, 2017-18, was USD 223.512 billion as against USD 199.467 billion in the yearago period, a growth of 12.05 per cent. Imports during the first nine months of the current fiscal amounted to USD 338.369 billion as against USD 277.89 billion, a growth of of 21.76 per cent. The trade deficit during the period widened to USD 114.85 billion. On the trade balance, FIEO said the rising deficit "is alarming" and the import profile needs to be analysed carefully to see whether imports would augment domestic production or pose a challenge. Exports of only 21 (as against 24 in November, 2017) out of 30 major product groups were in the positive territory in December, 2017 including engineering goods, petroleum, organic and inorganic chemicals, gems and jewellery, and drugs and pharmaceuticals. Gupta further said exporters are having "huge problem" in getting
refund of input tax credit (ITC) both due to "ignorance and recalcitrant approach" of the tax authorities. He said exporters should be given reasons for the delay and there should be close monitoring of GST refund for exports on day to day basis. Aditi Nayar, Principal Economist with ICRA said that a sharper than expected rise in imports of gold, and pearls, precious and semi-precious stones, amid a considerable decline in the pace of growth of non-oil merchandise exports, bloated the merchandise trade deficit to a three-year high of USD 14.9 billion in December 2017. Meanwhile, the Reserve Bank data showed that the exports in services in November 2017 were valued at USD 15.392 billion. The imports were valued at USD 9.64 billion. It said in a press release that the trade balance in services (net export of services) for the month was estimated at USD 5.74 billion. The Finance Minister and the Reserve Bank will have to take into account these mixed signals while preparing the budget for 2018-19 and the next monetary policy, respectively, due in early February.