Macro data signals an economic turnaround
POSITIVE CUES Factory output grows at robust pace of 7.5%, retail inflation cools to 4.4%
NEW DELHI:INDIA’S factory output grew at a robust pace for the third straight month, at 7.5% in January, while retail inflation surprisingly slowed for the second consecutive month to 4.4% in February, signalling that the economy may be set on a strong recovery path.
In December, the index of industrial production (IIP) grew at 7.1%, while consumer price index (Cpi)-based inflation slowed to 5.1% in January.
The economy regained its momentum in the December quarter, recovering from disruptions caused by demonetisation and implementation of the goods and services tax, to expand at 7.2%, the fastest in five quarters. Based on the fiscal third quarter GDP data, the full year’s growth has been raised to 6.6%. The Economic Survey has estimated GDP to grow at 6.75% in the year to March 31.
The sharp improvement in IIP is a positive trigger for the March quarter GDP which will be announced on May 31, said Jaikishan J Parmar, an analyst at Angel Broking. “A good performance in May will take the overall GDP growth to above the 6.7% (mark). The onus is now on the government to ensure that bank credit is easily available at competitive rates so that these advantages of a turnaround can be actually sustained and also monetized,” Parmar added.
While a robust recovery in factory output in January continued to be driven by a revival in manufacturing activity (8.7%) as well as electricity generation (7.6%), the easing of inflation in February was due to a cooling of prices of vegetables (17.5%) and fuel and light (6.8%).
Slower inflation may also dissuade the central bank from taking a hawkish stance in the upcoming monetary policy review on April 5.
In February, the Reserve Bank of India (RBI) kept interest rates unchanged and warned that inflation risks were skewing upwards. It raised its March quarter CPI inflation forecast to 5.1% and projected an inflation range of 5.1-5.6% in the first half of the next fiscal year.
The seasonal trend of rising food prices as summer approaches may prevent further easing of food inflation (3.26% in February) in the ongoing month, said Aditi Nayar, principal economist at rating company ICRA Ltd.
“The eventual rabi harvest, distribution of the 2018 monsoon and the operationalisation of the proposals made in the Union Budget for FY2019 including the launch of Operation Greens and the augmentation of minimum support prices, would impact the trajectory of food inflation going forward,” she added.
In terms of industries, 16 out of the 22 industry groups in the manufacturing sector showed positive growth during January. The highest positive contributors to the robust index of industrial production growth continued to be digestive enzymes and antacids followed by diesel, electricity, sugar and two-wheelers.