A significant deceleration has been observed in inflation in the manufacturing sector — from around eight per cent in November 2011 to around five per cent in June, owing largely to a slowing demand.
“The pricing power is no longer in the hands of corporates because of receding demand and softening margins. Having said that, global metal prices are also declining, which have led to softening input pressures that remain,” says Mr Soumya Kanti Ghosh, Director & Head-Economics & Research at FICCI (Federation of Indian Chambers of Commerce and Industry).
Deceleration
Industry-watchers say the deceleration in the economy has hampered the investment scenario in the manufacturing sector, which has translated into zero capacity expansion.
“Industry is pinning its hopes on a reversal in the monetary policy stance of the RBI, which will bring down the cost of investment which, in turn, will spur capacity expansion,” says Dr S.P. Sharma, Chief Economist, PHD Research Bureau. The inflation rate has remained persistent since the beginning of the year at 7.5 per cent, owing largely to fuel and food inflation.
Inflation rate
Manufactured products’ inflation has roughly hovered around five per cent in the last four months.