IIP contracts again in Dec; retail inflation jumps to 68-month high

A day after Finance Minister Nirmala Sitharaman said economic growth was rebounding, government data on Wednesday showed that industrial output contracted by 0.3% in December while retail inflation jumped to a 68-month high of 7.59% in January on high food prices.

The data released by National Statistical Office (NSO) raised concerns over the sustainability of 'green shoots' in economic recovery and underscored the risk posed by inflation, which was cited by the Reserve Bank of India (RBI) for not cutting interest rates earlier this month.

Sitharaman had, replying to the debate on her Budget for 2020-21 in both Houses of Parliament on Tuesday, stated that seven indicators, including a rebound in industrial activity reflected in positive IIP growth, pointed towards green shoots in the economy.

Factory output, measured in terms of the Index of Industrial Production (IIP), had posed a modest growth of 1.8% growth in November last year after contracting for three consecutive months of August (-1.4%), September (-4.6%) and October (-4%). But it again contracted in December after manufacturing sector output saw a dip.

The cumulative IIP growth in April-December over the corresponding period of the previous year was 0.5%, the data showed.

The monthly swing in factory output growth between positive and negative territory over the past few months clearly suggests that industrial production is still weak and is showing no signs of stabilising.

IIP had recorded a growth of 2.5% in December 2018. The manufacturing sector output contracted by 1.2% in December 2019 as against a growth of 2.9% in the same month last year.

Electricity generation -- a barometer for industrial activity -- saw a 0.1% drop as against a growth of 4.5% in December 2018.