IIP GROWTH, RETAIL INFLATION DIP

IIP GROWTH, RETAIL INFLATION DIP

The economy continued to witness high growth in industrial production in December and retail price inflation in January, despite both declining from their 17-month highs seen in the previous month. Despite persisting double-digit growth in capital goods and fast-moving consumer goods, the Index of Industrial Production (IIP) expanded at a slower pace of 7.4 per cent in December, from the upward revised 8.8 per cent in November.

Provisional estimates had put the November growth at 8.4 per cent. Infrastructure and construction grew 6.7 per cent, against 13.89 per cent in November. The numbers were bolstered by manufacturing and a low growth of 2.4 per cent a year ago due to demonetisation. INDIVJAL DHASMANA & ISHAN BAKSHI write.

The economy continued to witness high growth in industrial production in December and retail price inflation in January, despite both declining from their 17-month highs seen in the previous month.Despite persisting double-digit growth in capital goods and fast moving consumer goods, the Index of Industrial Production (IIP) expanded at a slower pace of 7.4 per cent in December, from the upward revised 8.8 per cent in November. Provisional estimates had put the November growth at 8.4 per cent. Infrastructure and construction grew 6.7 per cent, against 13.89 per cent in November.

The numbers were bolstered by manufacturing and a low growth of 2.4 per cent a year ago due to demonetisation.Madan Sabnavis, chief economist with CARE Ratings, said there was all-round performance, especially in manufacturing. “Cumulative growth at 3.7 per cent indicates that growth for the entire year could reach 5 per cent if this tendency is sustained.”

On the other hand, Consumer Price Index-based inflation fell from 5.21 per cent in December to 5.07 per cent in January, broadly in line with the Reserve Bank of India’s (RBI’s) projection. This justified the RBI stance of maintaining status quo on the policy rate. During the recent policy review, the RBI had raised projection for inflation to 5.1 per cent for the fourth quarter from the earlier 4.3-4.7 per cent.

“The CPI will move upwards” on implementation of the Budget proposals, said N R Bhanumurthy, Delhi-based economist at the National Institute of Public Finance. “Forget about interest rate cuts, get ready for rate hikes instead.”Morgan Stanley has predicted the RBI would tighten rates between October and December — or even before. Food inflation fell to 4.70 per cent from 4.96 per cent, while inflation in fuels fell to 7.73 per cent from 7.90 per cent. Vegetables prices remained high. These rose at 26.97 per cent in January, albeit less than 26.97 per cent in the previous month.

The gross domestic product (GDP) growth for the third quarter of the financial year is due this monthend. The second advance data is also expected then. Among the important data points to watch out for this month are Wholesale Price Indexbased inflation and exports data.

The GDP growth is estimated at 6.5 per cent in 2017-18 against 7.1 per cent in 2016-17, according to the Advance Estimates.The International Monetary Fund, World Bank, RBI and the Economic Survey have estimated this growth to be slightly higher at 6.6-6.7 per cent.Data showed that industrial performance and gross fixed capital formation, indicating investments, might recover in the third quarter. This was because the IIP had grown by 5.9 per cent in the third quarter of 2017-18, up from 3.3 per cent sequentially. IIP growth was on low base of last year.

The Business Standard, New Delhi, 13th February 2018

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