The heart of India’s economy skipped a beat on Tuesday, as reflected in two macro-economic data points — factory output and retail inflation — which presented an unexpectedly downbeat picture and put the RBI’s interest rate reduction efforts in a spot.
All indications are that the central bank willwait to see the shape of the Union Budget and not tinker with policy rates in its upcoming monetary policy review on February 2.
The Index of Industrial Production (IIP) for November contracted 3.2 per cent,moving into negative territory for the first time in 13 months, against a 9.8 per cent growth spurt in October, official data released on Tuesday showed.
Many economists saw November’s IIP contraction as an aberration rather than a trend.
The expectation is that industrial production will bounce back in the coming months to about 2-3 per cent, said Rishi Shah, Economist, Deloitte India.
Retail inflation The consumer price index (CPI) based inflation for December edged up for the fifth straight month at 5.61 per cent against 5.41 per cent in November.
The driving factor was food inflation, which at 6.4 per cent hit a nine-month high. Food inflation accounts for 46 per cent of the CPI basket. Food inflation was at 6.07 per cent in November 2014 and 3.96 per cent in December 2014. Pulses continue to remain a pain point for consumers with a year-on-year increase of 46 per cent in December 2015. However, pulses prices rose only marginally on a sequential basis for the month under review.
Manufacturing down For November 2015, factory output was pulled down primarily by weak manufacturing, which shrank 4.4 per cent. Production loss due to the Chennai rains and the fewer number of working days in that month may have been the key factors.
Electricity generation rose 0.7 per cent while mining output growth slowed to 2.3 per cent in November 2015. Devendra Pant, Chief Economist, India Ratings & Research, said that manufacturing was weighed down mainly due to a sharp contraction of capital goods output (-24.4 per cent) after a gap of four months.
Indranil Pan, Chief Economist, IDFC Bank, said nobody expected the IIP to turn negative. The contraction was largely due to poor manufacturing performance, he said. Aditi Nayar, Senior Economist, ICRA, cautioned against scrutinising the contraction in industrial output in November 2015 in isolation. “We are in favour of assessing the combined growth for October-November 2015 as compared to the same months in 2014,” she added.