Di­wali boost to IIP, in­fla­tion un­changed

Mint ST - - FRONT PAGE - Jan BY ASIT RAN­JAN MISHRA asit.m@livemint.com NEW DELHI Aug Jan

In­dia’s fac­tory out­put re­bounded strongly to a nine-month high of 4.3% in Au­gust as com­pa­nies stepped up pro­duc­tion to re­stock ware­houses ahead of the fes­ti­val sea­son, af­ter they re­duced out­put in June and July ow­ing to un­cer­tain­ties re­gard­ing im­ple­men­ta­tion of the goods and ser­vices tax (GST).

The Cen­tral Sta­tis­tics Of­fice (CSO) fur­ther re­vised down­ward the in­dex of in­dus­trial pro­duc­tion (IIP) fig­ure for July to 0.9% from 1.2% es­ti­mated ear­lier.

Data sep­a­rately re­leased by CSO showed that re­tail in­fla­tion was un­changed at 3.28% in Septem­ber from its re­vised fig­ure for Au­gust—the pro­vi­sional re­tail in­fla­tion for Au­gust was 3.36%.

The re­bound in fac­tory out­put re­in­forces the claim that sub­se­quent quar­ters would see a re­cov­ery in the eco­nomic growth mo­men­tum; growth in gross do­mes­tic prod­uct had slowed to 5.7% in the quar­ter ended June. How­ever, an­a­lysts claimed that it would be bet­ter to wait and watch.

“Three suc­ces­sive impressive growth rates would in­di­cate a real re­cov­ery. Or else it would be more a case of the re­stock­ing im­pact of the GST ef­fect,” said Madan Sab­navis, chief econ­o­mist at Care Rat­ings.

Af­ter the econ­omy un­ex­pect­edly slowed to a three­year low of 5.7% in the first quar­ter, clam­our for a fis­cal stim­u­lus grew, with fi­nance min­is­ter Arun Jait­ley also hint­ing at mea­sures to re­vive the econ­omy.

The newly con­sti­tuted Prime Min­is­ter’s Eco­nomic Ad­vi­sory Coun­cil un­der econ­o­mist Bibek De­broy which met for the first time on Wed­nes­day ruled out the need for a fis­cal stim­u­lus to prop up the econ­omy, hold­ing that the econ­omy is on a re­cov­ery path.

The sec­toral sig­nals so far have been mixed.

Growthin­car­salesin Septem­ber slowed to 7% from 11.8% a month ago while pas­sen­ger ve­hi­cles sales grew 11% in Septem­ber from 13.8% a month ago, ac­cord­ing to data re­leased by in­dus­try lobby So­ci­ety of In­dian Au­to­mo­bile Man­u­fac­tur­ers.

How­ever, de­mand for plane seats in the fes­ti­val sea­son has been weak, with air­lines of­fer­ing a Di­wali bo­nanza in the form of sharp cuts in flight ticket prices to at­tract trav­ellers, Mint re­ported on 11 Oc­to­ber.

Typ­i­cally, flight fares in the fort­night lead­ing up to Di­wali and in the quar­ter to 10 Jan­uary are among the high­est in the year.

Aditi Na­yar, prin­ci­pal econ­o­mist at ICRA Ltd, said the pickup in in­dus­trial growth may not sus­tain in Septem­ber.

“While the im­pact of post­gst re­stock­ing may have started to fade, in­ven­tory build­ing prior to the fes­tive sea­son is likely to have bol­stered man­u­fac­tur­ing growth in the just-con­cluded month. Nev­er­the­less, given the some­what un­favourable base ef­fect, we ex­pect the IIP growth to ease in Septem­ber 2017 rel­a­tive to print of 5% in Septem­ber 2016,” she added.

RBI pared its eco­nomic growth pro­jec­tion based on gross value added to 6.7% for 2017-18 from 7.3% es­ti­mated ear­lier, blam­ing the tepid growth in food­grain pro­duc­tion, ad­verse im­pact of GST im­ple­men­ta­tion on in­dus­tries and weak con­sumer con­fi­dence. How­ever, it held that the eco­nomic re­cov­ery will be­gin as soon as the sec­ond quar­ter of the fi­nan­cial year.

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