Factory output, retail inflation worsen policy dilemma (Roundup)

The government Wednesday released macro-economic data which showed lack of revival in economic growth and inflation at an elevated level accentuating the policy dilemma of the central bank.

Industrial output growth fell to 2 percent in April due to sluggish performance of manufacturing and mining sectors, as compared to the revised 3.4 percent recorded in the previous month, according to data released by the Central Statistics Office (CSO) here.

The growth of the manufacturing sector declined to 2.8 percent in the month under review as compared to 3.2 percent registered in March.

The mining sector continued to remain a big drag as output declined by 3 percent in the first month of the current financial year. Electricity production grew by a sluggish 0.7 percent.

"The subdued growth is particularly disappointing since it comes on the back of a low base of April 2012 when the IIP had reported a 1.3 percent contraction," said Bhupali Gursale, an economist at Angel Broking.

Another CSO report showed retail inflation moderating but remaining at an elevated level of 9.31 percent in May.

The inflation, based on the Consumer Price Index (CPI), was recorded at 9.39 percent in the previous month and 10.39 percent in March.

"Put together, the data on IIP and CPI inflation is disappointing," Gursale said.

Commenting on the industrial production data, Naina Lal Kidwai, president, Federation of Indian Chambers of Commerce and Industry (FICCI) said: "overall the investment sentiments remain subdued in manufacturing and infrastructure, and unless we see speedy implementation of projects stuck due to inter-ministerial clearances, industrial growth is likely to remain moderate."

"Growth in manufacturing though seems to have bottomed-out but remains fragile as some major sectors like basic metals, automotive, machinery & equipment have shown negative growth," Kidwai said.

Unfavourable macro-economic data coupled with the recent weakness in rupee has complicated the Reserve Bank of India's job to strike a balance in the monetary policy, when it reviews it June 17.

The RBI has cut interest rates for the third time in a row.

The director general of Confederation of Indian Industry (CII) Chandrajit Banerjee said there was an urgent need to kickstart the investment cycle by speeding up clearances by the Cabinet Committee on investment and addressing supply side bottlenecks in infrastructure.

"CII also looks forward to an accommodative monetary policy announcement on 17th June to stimulate investment," Banerjee said.

"What is also required is infusing competition in the mining sector, improving coal supply position to the power sector, accelerating disinvestment and putting in place a conducive policy for attracting FDI inflows," he said.