Factory output rose to a two-month high of 4.3 per cent in July, primarily on account of higher output growth in manufacturing and mining sectors, data released by the Ministry of Statistics and Programme Implementation (MoSPI) showed. Retail inflation, based on Consumer Price Index (Combined), climbed to a 10-month high of 3.21 in August, on the back of rise in food inflation, a separate set of data released by MoSPI showed. The Index of Industrial Production (IIP) growth for July 2019 rebounded from 1.2 per cent growth, despite a high base effect. IIP growth for July last year was recorded at 6.5 per cent.
Manufacturing output, which carries weight of 77.63 per cent in IIP, picked up pace to 4.2 per cent growth rate in July as against a growth of 0.2 per cent in the previous month, though it was lower than 7.0 per cent in the year-ago period. Mining sector output grew at 4.9 per cent in July as against 3.4 per cent in the year-ago period, while consumer non-durables output grew at 8.3 per cent as against 5.3 per cent a year ago.
Electricity output recorded a growth of 4.8 per cent in July as against 8.2 per cent a month ago and 6.6 per cent in the year-ago period. However, capital goods output, an indicator of investment activity, continued to stay in the negative territory for the seventh straight month, contracting 7.1 per cent in July as against a growth of 2.3 per cent in the year-ago period.
Consumer durables output also contracted for the second month running, recording a contraction of 2.7 per cent as against a contraction of 10.2 per cent a month ago and a growth of 14.1 per cent in the year-ago period.
RBI might go for another rate cut
While the high growth of intermediate goods output and primary goods output offers hope of output picking up, capital goods and durables continue to disappoint. Even as the headline IIP number is positive, there is bound to be support from the RBI in terms of more rate cuts in the next month’s policy meet.
Economists said the high growth of intermediate goods output and primary goods output give hope of output picking up but it may be too early to term it as a recovery. Devendra Kumar Pant, chief economist, India Ratings & Research said, “Continued double digit growth of intermediate goods growth in last three months and 3.5 per cent growth in primary goods in July 2019 give a glimmer of hope of minor industrial recovery in coming months. However, it will be too early to term this as recovery and one has to wait for some more time and completion of forthcoming festive season to judge whether industrial recovery is there for real. In the past we had seen pattern of some industrial revival and then collapse in industrial recovery.”
Sector-wise data showed that the growth in intermediate goods grew in double digits for the third consecutive month at 13.9 per cent in July as against 1.3 per cent last year. Cumulatively, industrial output grew at 3.3 per cent in April-July as against 5.4 per cent a year ago.
Retail inflation in August rose significantly primarily due to rise in food inflation. Consumer Food Price Index (CFPI) inflation stood at 2.99 per cent in August as against 2.36 per cent in July. Urban areas recorded higher food inflation than rural areas, with urban food inflation being recorded at 7.07 per cent in August, while rural inflation stood at 0.85 per cent.
At 3.21 per cent, the overall retail inflation rate is slightly higher than the RBI’s inflation projection of 3.1 per cent for July-September 2019-20, but well within the medium term target of 4 per cent within a band of +/- 2 per cent.