IIP in negative territory for 2nd month, CPI inflation hardens

Remaining in the negative zone for the second month, industrial output in December shrank 1.3 per cent while retail inflation in January edged up to a 16-month high, prompting the industry to call for urgent policy action in the forthcoming Budget to spur revival.
While factory output continued to fall primarily because of a decline in production of capital goods and manufactured products, retail inflation rose as a result of costlier food items.
Industrial production contracted 1.3 per cent in December, as against a decline of 3.4 per cent in November, according to data released by the Central Statistics Office (CSO).

The industrial activity had grown by 3.6 per cent in December 2014.
Complicating the matter, retail inflation as measured by the consumer price index (CPI) inched up to a 16-month high of 5.69 per cent in January compared with 5.61 per cent in December. It stood at 5.19 per cent in January 2015.
"As both high-frequency data show deterioration, the macroeconomic management of the economy by the government as well as RBI is going to be more difficult ahead, particularly when the Union Budget is due by the end of this month," said Sunil Kumar Sinha, Principal Economist, India Ratings & Research.

Worried over the macro numbers, India Inc today made a renewed call for policy initiatives in the upcoming Budget to push industrial growth.

"Estimates of industrial production for December 2015 mirrored the subdued industrial activity in the country and call for urgent policy remedies," said Assocham President Sunil Kanoria.
Commenting on the twin macro economic data, industry body Assocham termed the figures IIP number as uneven and fragile.
"The macro picture, as reflected by negligible up-tick in industrial growth thanks to a sharp deceleration in capital goods and other vital segments for March and retail inflation expanding at a much higher pace than expected, looks challenging once again," Assocham President Sunil Kanoria said in a statement.

He further said, "Widespread drought has definitely affected the food prices sending the CPI upwards, hoping normal Monsoon should bring in comfort level. Overall, the big picture looks far more difficult making it imperative for the government to bring in policy reforms and demand push measures."
"The government must also front-load its capital expenditure for the fiscal 2016-17 to stimulate the economy," he added.
According to IIP data, the performance of consumer goods segment was also dismal as it recorded a meager growth of 0.4 per cent in March compared to a contraction of 0.6 per cent a year ago. During 2014-15, the output of these goods grew at 3 per cent compared to a decline in production by 3.5 per cent.

However, consumer durables performed well and recorded a growth of 8.7 per cent in March this year compared to contraction of 4.6 per cent. During the entire fiscal, the output of these goods grew by 11.2 per cent compared a decline in production by 12.6 per cent.
The consumer non-durable goods output contracted by 4.4 per cent in March compared to a growth of 1.9 per cent in same month a year ago. During the fiscal under review, the output declined by 1.7 per cent compared to a growth of 2.8 per cent in 2014-15.
On the other hand, food inflation rose to 6.32 per cent in April against 5.21 per cent in March. The rate of price rise in vegetables quickened to 4.82 per cent while fruits turned costlier by 1.66 per cent in April.

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Commenting on the IIP for November, CII Director General Chandrajit Banerjee said industrial output has bounced back sharply after a sluggish growth in the preceding months.
"This was possible due to a sharp growth in electricity and mining sectors as well as a turnaround in manufacturing," Banerjee said.
Noting that these numbers may not yet be reflecting the impact of demonetisation, he however added that these signs of an upturn in IIP are encouraging, as it is indicative of stronger demand in both consumption and investment.
Commenting on retail inflation number, Yes Bank Chief Economist Shubhada Rao said that after peaking out at 6.07 per cent in July 2016, CPI inflation has been on a secular downward trajectory.

"The favourable impact of good monsoon along with efficient supply response and administrative steps taken by the government has helped to push down the annualised rate of food inflation to sub 2 per cent levels," Rao said.