FACTORY OUTPUT SEES 7.1% SURGE
Recovery in IIP augurs well for third quarter GDP data
India’s factory output saw robust growth for the second month, growing at 7.1% in Dec, while inflation slowed to 5.07% in Jan, signalling the worst may be over.
India’s industrial production registered robust growth for the second straight month, growing at 7.1% in December, while retail inflation slowed to 5.07% in January, signalling that the economy may be stabilising.
The pick-up in industrial output was driven by a 8.4% growth in the manufacturing sector. Electricity and mining, the two other categories, expanded 4.4% and 1.2%, respectively, data released by the Central Statistics Office on Monday showed.
It is likely that the recovery in factory output will augur well for the fiscal-third quarter gross domestic product data due to be released on 28 February.
In another signal that the economic sentiment may be improving, the quarterly Business Confidence Index, released separately on Monday by the Delhibased economic think tank National Council of Applied Economic Research (NCAER), registered a growth of 9.1% in January, after declining for two consecutive quarters.
In November, the index of industrial production (IIP) grew 8.8% and consumer price index (CPI) based inflation quickened by 5.21% in December.
Though a low base last year is partially responsible for the pick up, higher growth in cement, diesel and two wheelers signal a revival in economic demand.
Gross value added growth is likely to improve to around 6.8% in the third quarter from 6.1% in the preceding September quarter, led by manufacturing, construction and services, Aditi Nayar, principal economist at ICRA Ltd, said in a statement.
Anis Chakravarty, partner and lead economist at Deloitte India, said while IIP growth was expected to be around the highsingle-digit range, the breakup shows that overall growth in the economy has bottomed out and is slowly improving. “The trend suggests that the impact of GST (Goods and Services Tax) has most likely waned,” Chakravarty said in a statement.
While output of consumer non-durables grew at a robust 16.5% in December, production of consumer durables continued to remain sluggish, growing at 0.9%.
However, economists warned against reading too much into expansion in the volatile capital goods segment (16.4%), which has been registering positive growth for the past five months.
“It remains somewhat premature to attribute the recent double-digit growth in capital goods to a pickup in investment activity, as it benefits from the rebuilding of inventories for subsectors such as commercial vehicles as well as a favourable base effect related to the 6.2% contraction in December 2016,” Nayar said.
While food inflation softened in January, higher oil (7.7%) and rent allowance (8.3%) limit a larger correction in price pressures.
Radhika Rao, India economist at DBS Bank, said the inflation data is along the Reserve Bank of India’s (RBI) revised projections, with CPI expected to remain elevated for the next six months due to base effects. “The central bank has already indicated that it will look through near-term prints and today’s numbers don’t warrant any change in their neutral policy stance,” she added.
The Reserve Bank of India on Wednesday 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.