Growth in industrial production plunged to 0.1 per cent in March due to poor performance of manufacturing and mining sectors coupled with a sharp decline in output of capital goods, while retail inflation soared to 5.39 per cent in April on higher food prices, reversing a downward trend seen in recent months.
Factory output measured by index of industrial production (IIP) was 2.5 per cent in March last year, according to data released by Central Statistical Office. The annual rate of price rise, based on the CPI in March stood at 4.83 per cent, the lowest in six months.
Experts feel that a rise in CPI inflation has diminished the hopes of a rate cut in the upcoming RBI’s monetary policy meeting scheduled for June 7. Food inflation rose to 6.32 per cent in April from 5.21 per cent in the preceding month. Economists said that a rise in inflation will result in RBI having a closer look at the numbers as some parts of the country are facing drought situation.
“While the rate is within the 6 per cent upper band, the RBI will be observing this closely as the present drought conditions in Maharashtra and other parts with zero reservoir levels can lead to pressure on some products even if the monsoon is normal given the prevailing difficult conditions,” said a Care Ratings analysis. It, however, said that given the monsoon forecast, the CPI inflation rate may not cross 6 per cent.
Aditi Nayar of ICRA Limited said that, “Notwithstanding the dismal performance of manufacturing in March 2016, the uptick in headline as well as core CPI inflation in April 2016 have reduced the likelihood of a rate cut in the upcoming policy, unless the monsoon onset delivers a positive surprise.”
The industrial production lost momentum on account of deterioration in performance of all major categories. While the sharpest drag was exerted by capital goods, which recorded a contraction of 15.4 per cent in March 2016, even the mining sector witnessed a contraction. “The sharp slippage in the performance of mining to a contraction of 0.1 per cent in March 2016 as compared to the moderate 5.1 per cent growth in February 2016 can be attributed to the weakness in coal, crude oil and natural gas,” said Nayar.
The manufacturing sector, which accounts for over 75 per cent of the IIP, declined by 1.2 per cent in March against a growth of 2.7 per cent in same month a year ago. The sector has not done well in 2015-16 as it grew at meager rate of 2 per cent compared to 2.3 per cent in previous year. With PTI