IIP growth at 17-mth high brings cheer; inflation a dampener

Source: The Hitavada      Date: 13 Jan 2018 09:45:21


Jan 12,


A ROBUST performance by the manufacturing sector took the industrial production growth to a 17-month high of 8.4 per cent in November, but the retail inflation at a 17-month high of 5.2 per cent in December dampened the euphoria. The continuous rise in consumer inflation may prompt the Reserve Bank, which is aiming to keep it within 4 per cent, to hold the interest rate at its next month’s policy review meet, which will be held within days of the presentation of the Union Budget on February 1.

The manufacturing sector, which constitutes 77.63 per cent of the Index of Industrial Production (IIP), recorded an impressive growth of 10.2 per cent in November as compared to 4 per cent a year ago. Among the sectors, pharmaceuticals clocked the highest growth of 39.5 per cent, followed by 29.1 per cent in computer, electronic and optical products and 22.6 per cent in the automobile segment. Capital goods output, which is a barometer of investment, too, grew at a higher rate of 9.4 per cent in November as against 5.3 per cent a year ago.

As regard the retail inflation, it crossed the RBI’s comfort level and rose to 5.21 per cent in December on rise in prices of food items, egg and vegetables, dashing hopes of interest rate cut in the near future. The retail inflation, based on the Consumer Price Index (CPI), was 4.88 per cent in Novem-ber 2017. In December 2016, it was 3.41 per cent. The RBI has been asked by the Govern-ment to keep inflation at 4 per cent, plus or minus 2 per cent, and its rise beyond the comfort zone will put pressure on the central bank to decide against interest rate cut. The central bank is slated to come out with its next monetary policy review on February 7, 2018.

As per the data released by the Central Statistics Office (CSO), inflation for the food basket increased to 4.96 per cent in December from 4.42 per cent in the preceding month.The previous high of CPI-based inflation was recorded at 6.07 per cent in July 2016. Similarly, the previous high industrial output growth was recorded at 8.9 per cent in June 2016.

Data suggests that eggs, vegetables and fruits became costlier. The factory output, measured in terms of Index of Industrial Production (IIP), grew 5.1 per cent in November 2016, as per CSO data. Meanwhile, the IIP growth for October 2017 has been revised downwards to 2 per cent from the provisional estimates of 2.2 released last month.
Consumer non-durables, which are mainly fast moving consumer goods (FMCG), showed an output growth of 23.1 per cent in November 2017 as against 3.3 per cent in the comparable month of 2016.