INDIA INC’S OUTPUT SLIPS TO 1.2%

Consumer inflation shoots to 5-month high in August; RBI unlikely to cut interest rates

The industrial production witnessed an anaemic growth of 1.2 per cent in July as manufacturing sector was hit by GST jitters. What is worse is that the retail inflation, fuelled by strong gains in prices of food items, rose more than expected to a fivemonth high in August.

The inflation based on consumer price index (CPI) rose to 3.36 per cent in August from 2.36 per cent in the previous month. The rise in inflation may prevent the Reserve Bank from any further cut in interest rates, which would have given a boost to industrial production. However, industrial production in July was better than June when it had declined by 0.2 per cent.

The manufacturing sector grew by mere 0.1 per cent in July compared to 5.3 per cent in the same period of 2016.

Output of capital goods — a proxy for infrastructure investments in the country — contracted 1 per cent in July as against a growth of 8.8 per cent in the year-ago period. Consumer durable goods met with similar fate, with production declining 1.3 per cent as against a growth of 0.2 per cent a year earlier.

However, electricity generation stood out as it posted a growth of 6.5 per cent in July, up from 2.1 per cent in July 2016. Mining output too expanded by 4.8 per cent, as against 0.9 per cent in the year-ago month.

“Notwithstanding the disappointing industrial production print for July 2017, the early indicators for industrial production in the organised sectors in August 2017 are encouraging, such as the sharp year-on-year expansion of output of Coal India Limited (after four months of contraction), and improvement in growth of automobile production and electricity generation,” said Aditi Nayar, principal economist, at ratings agency Icra.

Given the favourable base effect and the expected rebuilding of inventories prior to the festive season, Icra expects IIP growth to improve in August 2017, she said.

As per the inflation data, food inflation in August moved up to 1.52 per cent.

Daily consumables like fruits and vegetables turned costlier during the month with inflation print coming at 5.29 per cent and 6.16 per cent, respectively as against 2.83 per cent and minus 3.57 per cent in July, according to the data released by the Central Statistics Office (CSO).

However, items such as cereals and products, meat and fish, oils and fats became cheaper at inflation prints at 3.87 per cent, 2.94 per cent and 1.03 per cent, respectively.