IIP growth slows to 3.1% in April, retail inflation drops to 2.18% in May

India’s factory output slowed and retail inflation eased, adding pressure on the central bank to reduce interest rates to boost economic growth.

Data released by the Central Statistics Office showed the index of industrial production (IIP) slowed marginally to 3.1% in April from 3.8% a month ago as mining production and electricity generation eased. Retail price inflation, as measured by the consumer price index (CPI), slowed to 2.18% in May from 2.99% a month ago as food prices started falling from their yearago level.

Slower industrial output growth and lower inflation may put pressure on the Reserve Bank of India (RBI) to change its policy stance to accommodative from neutral. Last week, RBI kept policy rates unchanged in its latest monetary policy review. Following RBI’s decision, chief economic adviser Arvind Subramanian publicly disagreed with the central bank, suggesting that softening inflation and slowing economic growth warranted a “substantial monetary policy easing”.

“In recent times, seldom have economic conditions and the outlook warranted substantial monetary policy easing (as much as now),” said Subramanian. Growth has decelerated from July, Subramanian said, citing several economic indicators including real gross value added (GVA), industrial output, capital formation and capacity utilisation in industry.

In its monetary policy review, RBI said the easing of inflation, excluding food and fuel, may be transient in view of its underlying stickiness in a situation of rising rural wage growth and strong consumption demand.

“Thus, the April reading has imparted considerable uncertainty to the evolving inflation trajectory, especially for the near months. If the configurations evident in April are sustained, then absent policy interventions, headline inflation is projected in the range of 2.0-3.5% in the first half of the year and 3.5-4.5% in the second half,” it added.

An early onset of the annual south-west monsoon and prospects of ample rain have led to higher-than-normal sowing of rain-fed kharif crops across India, according to data released by the agriculture ministry on Friday.

The business expectations index generated by the RBI’s April round of the Industrial Outlook Survey reflects optimism in the manufacturing sector in the second quarter of 2017-18, driven by expectations of rising rural demand, exports and profit margins.