IIP for May surprises at 1.2 pct, CPI flat at 5.77 pct

The Index of Industrial Production (IIP) for May witnessed an upside of 1.2 percent against a decline of -0.8 percent in April posting the best figure since February 2016.

Four of the last six months have seen a contraction. Consumer non-durables have been declining for the seventh consecutive month. The contraction has declined to 2.2 percent for the month in question.

The Consumer Price Index (CPI) for the month of June jumped to a 22-month high at 5.77 percent compared to 5.76 percent dampening hopes of a rate cut by the Reserve Bank of India.

In June's policy review meet, RBI Governor Raghuram Rajan kept interest rates intact, citing rising inflationary pressure, but hinted at a reduction later this year if good monsoon helps ease inflation.

Meanwhile, the monsoon rains, which arrived a week later than usual this year, are crucial for the planting of summer-sown crops such as cotton, rice, soybean and sugarcane.

However, the CPI food inflation continued to rise in June and stood at 7.79 percent compared to 7.55 percent a month earlier. June CPI vegetable inflation also rose to 14.74 percent compared to 10.77 percent in May.

The manufacturing sector output was a pleasant surprise as it witnessed an increase of 0.7 percent compared to -3.1 percent on a month-on-month basis. Capital goods output declined to -12.4 percent compared to -24.9 percent monthly.

Commenting on the numbers, ASSOCHAM secretary general, D.S. Rawat said, "Domestic conditions for growth are improving gradually, mainly driven by consumption demand, which is expected to strengthen with a normal monsoon and the implementation of the Seventh Pay Commission award."

"Higher public sector capital expenditure, led by roads and railways should crowd in private investment, offsetting somewhat the subdued appetite for fresh private investment due to financial stress," added Rawat.

Terming the latest IIP estimates fragile and uneven as it is hovering around positive and negative territory month after month without showing any clear indication on revival of industrial performance in India, the ASSOCHAM has urged the policymakers to address the structural problem in the economy where demand for capital is lacking because of excess capacity, slow growth in new orders, high leverage and supply of capital is lacking because of rising NPAs, mounting losses with banks and limited availability of capital for lending.