TWIN TROUBLE: IIP SAGS, RETAIL INFLATION HITS 5-MONTH HIGH
Higher fuel costs drove up headline inflation to a five-month high of 3.81 per cent in March, whereas a contraction in consumer and capital goods production has led to industrial production falling by 1.2 per cent in February. Government figures on Wednesday showed retail fuel inflation accelerated to 5.56 per cent in March from 3.90 per cent a month ago. Food prices rose 1.93 per cent on the year, slower than a 2.01 per cent annual increase a month earlier. The central bank had decided last week to keep its policy rate on hold for a third straight month amid concern about prices. On the other hand, national factory output, measured in terms of the Index of Industrial Production, fell, owing to the volatile capital goods output falling by 3.4 per cent.
Industrial output had contracted 1.2 per cent in February from a year earlier, driven down by a contraction in capital goods production, government data showed on Wednesday.
Factory output, measured by the Index of Industrial Production (IIP), had expanded by a revised 3.3 per cent in January. This was mainly due to a bounce-back in the consumer and capital goods sectors. Industrial output had contracted 0.1 per cent in December, on account of the cash crunch after demonetisation of high value currency notes.
Manufacturing, three-fourth of the index, fell by two per cent in February, as compared to a 2.3 per cent rise in January.
In all, nine of the 22 industry groups in the manufacturing sector showed positive growth during February on an annual basis. Of these, the industry group 'electrical machinery and apparatus'’ and basic metals continued to be among the highest growing. Sugar, cements and plastic machinery showed high declines.
“This clearly shows the fragile nature of industrial/manufacturing growth, languishing for years. No doubt the overall macro economic environment is conducive for growth but there are cyclical/structural factors at both the global and domestic level. This is making industrial/manufacturing recovery a long-drawn process, leaving one to wonder when we will reach the end of the tunnel,” said Sunil Kumar Sinha, principal economist at India Ratings & Research.
Electricity generation was up a marginal 0.3 per cent, as against a 3.9 per cent rise in January. Mining also maintained a growth trend, going up by five per cent in February, as compared to a 5.3 per cent rise the previous month.
Similar to the main index, capital goods fell by 3.4 per cent. The segment had shown 10.7 per cent growth in January, after a three per cent fall in December. The sector is a volatile part of the IIP.
Consumer goods contracted by 5.6 per cent. This is owing to both durable and non-durable items, contracting by 0.9 and 8.6 per cent, respectively.
Cumulative growth of the country's factory output for the April-February of 2016-17 (first 11 months of that financial year) was 0.4 per cent, much lower than that of 2.6 per cent during the corresponding period of 2015-16.
Industrial production for March is expected to have done well. “Available indicators for March paint an improved picture, with resumption of growth in automobile production, as well as improved growth of coal output, electricity generation, cargo handled at major ports and consumption of some fuels,” said Aditi Nayar, principal economist at ratings agency ICRA.