INDUSTRIAL GROWTH YET TO STABLISE, SAYS IND- RA

Rating agency India Ratings ( Ind- Ra) on Thursday said that the latest Index of Industrial Production ( IIP) and consumer price index ( CPI) data indicate that the challenges for the economy are still very much intact.

Even though the IIP has turned positive, the volatility in IIP data indicates that the industrial growth has not stabilised and will remain so in the foreseeable future. The growth in IIP is not showing any relationship with infra data. While basic and intermediate goods have registered positive growth rates, there is no correlation with other used- based sectors in the economy, it said.

On the other hand, retail inflation, particularly food inflation is gaining further ground as the cereals inflation has firmed up above three per cent after a gap of 16 months.

India Ratings believes upside pressure from food inflation will remain a matter of concern as policy makers and the government cannot do much to control the prices of agricultural commodities such as pulses, etc.

Industrial production increased 1.2 per cent year on year ( YoY) in May 2016 against a contraction of 1.3 per cent in the previous month. The growth in factory output was primarily led by positive growth in the manufacturing sector.

Manufacturing output, which has a weightage of 75.5 per cent in IIP increased 0.7 per cent YoY in May 2016 after two consecutive months of negative growth. However at the used based level, it pointed out that the capital goods output continued its negative trend although it moderated from the previous month. Capital goods output contracted 12.4 per cent YoY in May 2016 against a contraction of 25 per cent in April 2016. According to India Ratings, a pick up in capital goods output would require further improvement in the manufacturing sector activity.