Factory output grew by 2 per cent in January from 1.6 per cent a year ago due to a pickup in mining and electricity output, even as manufacturing output growth remained subdued.
Retail inflation eased to a three-month low of 6.58 per cent in February with the food inflation moderating to 10.81 per cent from 13.63 per cent a month ago, data released by National Statistical Office (NSO) on Thursday showed.
Though the Index of Industrial Production (IIP) for January came in higher than estimates, despite the low base, industrial recovery looks out of sight with the cumulative factory output growth for the ten months of April-January growing at just 0.5 per cent against 4.4 per cent growth in the year-ago period and the impact of the COVID-19 outbreak expected to further hit industrial growth in the coming months. Stimulus measures for boosting demand are the need of the hour, economists said, and even though space for fiscal and monetary policy is limited, a lower inflation print has raised expectations of a rate cut by the Reserve Bank of India (RBI).
Manufacturing sector — which carries a weight of 77.63 per cent in the IIP — grew 1.5 per cent in January, only marginally higher than 1.3 per cent in the corresponding period last year, the data showed. For April-January, manufacturing sector has grown 0.3 per cent as against 4.4 per cent growth last year. As per use-based classification, four out of six sectors — capital goods, infrastructure/construction goods, consumer durables and consumer non-durables — stayed in the negative in January.
Capital goods output, a measure of investment demand, has contracted in each of the ten months this fiscal, declining 4.3 per cent in January compared with 3.6 per cent contraction last year. Cumulatively, capital goods output has contracted by 11.5 per cent in April-January from 5.7 per cent growth last year.
“Weakness in factory output growth is visible both at the broad and use based classification. Manufacturing, which is the largest component of IIP having 77.6 per cent weight continues to be down and out … India Ratings and Research (Ind-Ra) believes a sustained weakness in factory output month after month means that recovery on the industrial front is unlikely in the near term and now with the adverse impact of COVID-19 looming large it will get more prolonged,” said Sunil Kumar Sinha, principal economist, Ind-Ra.
After rising for six months, retail inflation based on Consumer Price Index (CPI) moderated for the first time, but remained above the medium-term target RBI. Inflation in vegetable prices eased to 31.61 per cent from a high of 50.19 per cent in January, while inflation for the fuel and light segment almost doubled to 6.36 per cent in February.
Fall in global crude prices are likely to aid a further easing of inflation going ahead. “We expect the inflation trajectory to continue to moderate going ahead led by deflationary trends from falling crude oil prices, lower food prices and weak demand. With domestic and global growth expected to face downside risks from the spread of COVID-19 and deflationary forces emerging, we see room for up to 50 basis points of rate cut by the MPC, with any further easing contingent on the evolving growth environment,’ Upasna Bhardwaj, economist, Kotak Mahindra Bank, said.
The Monetary Policy Committee (MPC) of the Reserve Bank had last month left policy rates unchanged for the second time. The RBI had slashed policy rates by 135 basis points in 2019. The MPC had sharply raised consumer price inflation projection to 6.5 per cent for the fourth quarter of FY20 from 5.1-4.7 per cent earlier. The panel pegged CPI inflation for the first half of FY21 at 5.4-5.0 per cent compared with 4-3.8 per cent earlier.
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