Factory growth slips to 1.7% in January on subdued manufacturing outputhttps://indianexpress.com/article/business/economy/factory-growth-slips-to-1-7-in-january-on-subdued-manufacturing-output-5623503/

Factory growth slips to 1.7% in January on subdued manufacturing output

Retail inflation, based on Consumer Price Index (CPI), increased to a four-month high of 2.57 per cent in February on the back of rise in prices of non-food items even as food inflation continued to remain in the negative zone, a separate set of data released Tuesday showed.

The IIP growth for January was also slower than the growth in December, which was revised up to 2.6 per cent from 2.4 per cent earlier.
The IIP growth for January was also slower than the growth in December, which was revised up to 2.6 per cent from 2.4 per cent earlier.

Factory output growth slowed to 1.7 per cent in January from 7.5 per cent a year ago, primarily due to weak manufacturing and electricity output coupled with an adverse base effect, data released by Central Statistics Office (CSO) Tuesday showed.

Retail inflation, based on Consumer Price Index (CPI), increased to a four-month high of 2.57 per cent in February on the back of rise in prices of non-food items even as food inflation continued to remain in the negative zone, a separate set of data released Tuesday showed.

The Index of Industrial Production (IIP) had posted strong growth during October 2017 to January 2018 reflecting a pickup following earlier destocking by industries ahead of the rollout of goods and services tax (GST) rollout from July 1, 2017. The IIP growth for January was also slower than the growth in December, which was revised up to 2.6 per cent from 2.4 per cent earlier.

Economists said though the high base reflected on January’s slower industrial growth, the industrial output is unlikely to pick up in the remaining two months of this financial year. Weaker industrial growth is an indicator of a slowdown in GDP growth for second half of this financial year, giving rise to expectations of a rate cut by the Reserve Bank of India (RBI) in its upcoming April policy meet.

Advertising

“Among used-based groups, capital goods output contracted, suggesting weak investment demand, it is only infrastructure/construction goods output, which provided support to the growth. The two lead indicators of IIP – primary goods (1.4 per cent) and intermediate goods (-3.0 per cent) portrays a weak industrial growth profile. While election related expenditure may provide some support, probability of lacklustre IIP growth in coming months is high,” Devendra Kumar Pant, chief economist, India Ratings said.

Sector-wise data showed that the growth in manufacturing sector, which accounts for 77.63 per cent of the index, slowed to 1.3 per cent in January from 8.7 per cent in January last year, while that of electricity weakened to 0.8 per cent from 7.6 per cent in previous year. Capital goods, an indicator of investment activity, showed volatility with a contraction in output by 3.2 per cent in January as against a growth of 12.4 per cent a year ago. Intermediate goods output remained in the negative zone for the third consecutive month at 3.0 per cent in January as against 5.4 per cent growth in previous financial year. Cumulatively, the IIP growth during April-January stood at 4.4 per cent, slightly higher than 4.1 per cent a year ago.

Explained

Base effect to remain key factor for weak IIP data this fiscal

The base effect, which had a role in the weakening of the January Index of Industrial Production (IIP) data, is expected to continue as a key factor during the rest of the current fiscal. Also, while retail inflation surged in February, it has stayed within the central bank’s comfort band. This could offer the Reserve Bank of India enough headroom to cut policy rates in its next review on April 5.

Retail inflation in February is the highest since October 2018 when it had touched 3.38 per cent. Consumer Food Price Index (CFPI) inflation stood at (-)0.66 per cent in February as against (-)2.24 per cent in January.

The ‘food and beverages’ segment registered a deflation of 0.07 per cent in February, with vegetables recording a deflation of 7.69 per cent and sugar and confectionery registering 6.92 per cent deflation. Inflation for the ‘fuel and light’ category moderated to 1.24 per cent in February from provisional 2.20 per cent a month ago.

At 2.57 per cent, the overall retail inflation rate is much lower than the Reserve Bank of India’s (RBI’s) inflation projection of 2.8 per cent for January-March quarter. The RBI, which in its sixth bi-monthly monetary policy statement on February 7 cut policy rate by 25 basis points, had revised down its inflation projections citing low food inflation due to excess supply conditions domestically as well as internationally and larger than anticipated moderation in fuel inflation.