Sunday, Nov 23, 2014

New govt has its hands full: IIP shrinks, April retail inflation at 3-month high

New Delhi | Posted: May 13, 2014 5:14 am

By FE Bureau

Industrial production contracted for the second straight month in March, driving down factory output growth to the lowest in at least three decades, while retail inflation hit a three-month high in April, in more trouble for the economy and probably for the new government at the Centre.

Analysts reckon a pick-up in consumer price inflation would squeeze any leeway for the RBI to ease key policy rates to spur growth. Some even pointed at further tightening of interest rates in the RBI’s next monetary policy review meeting on June 1 in view of potential threat to food prices from a likely monsoon failure as food and beverages make up for around 50% of the CPI basket weightage.

The IIP dropped 0.5% in March, compared to 3.5% a year before, showed the Central Statistics Office (CSO) data released on Monday. Manufacturing contracted in eight out of the 12 months through March as demand collapsed, dragging down industrial production growth to -0.1% in 2013-14 as against 1.1% a year before.

Factory output has steadily witnessed a decline since 8.2% growth in 2010-11 and remained far below 15.5% in 2007-08, the maximum industrial growth witnessed during the UPA regime. Manufacturing may continue to disappoint for some more time, as only 36% of respondents of the latest Ficci survey across 14 major sectors reported higher order books in the first quarter of the 2014-15 fiscal, compared with 44% in the previous quarter.

“Based on the growth rates in mining, manufacturing and electricity as per the IIP, the country’s gross domestic product is likely grow by 4.78% in 2013-14, as against 4.9% projected by the CSO in its advance estimate,” said CARE Ratings chief economist Madan Sabnavis.

The consumer price index also rose 8.59% in April against 8.39% in the previous month as food inflation, led by the usual culprit vegetable, inched further to 9.66% last month as against 9.10% in March. The Met department’s forecast of a 23% chance of a deficient monsoon this year, if proved correct, could further pressure food prices and drive up retail inflation.

Consumer goods output, too, declined 0.9% in March, the sixth straight monthly fall compared to 1.8% growth a year before, with consumer durables declining at a much faster pace of 11.8% in March from the same period a year earlier. This means the excise duty benefits offered on consumer as well as capital goods during the interim budget have failed to boost demand. However, after a fall in February, the consumer non-durables segment grew 7.2% in March, compared with 7.3% a year earlier.

CII director-general Chandrajit Banerjee said: “The negative growth of consumer durables reinforces our view that the sector continues to be stymied by the high interest rates. The data print indicates that upstream mining industries continues to show a contraction in output which, going forward, would lead to shortages of coal, ores and other industrial raw materials.”

“Industry is looking at announcements in the new Budget and Foreign Trade Policy to boost manufacturing and investment… we hope there will be continued…

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