After 2 months of contraction, IIP rebounds to 13-mth high of 3.4%, inflation falls to 8.2%

Written by PTI | New Delhi | Updated: Jun 13 2014, 03:29am hrs
Factory outputFactory output as measured by the IIP showed growth of 1.5 per cent in April 2013. (Reuters)
Some signs of improvement are visible in the Indian economy now, with factory output growth rebounding to 13-month high of 3.4 per cent in April and retail inflation easing to 8.23 per cent in May on account of falling prices of essential food items.

The Index of Industrial Production (IIP) surged in April after contracting for two consecutive months, mainly due to better performance of manufacturing, mining and power sectors and higher output of capital goods. The previous high of 3.5 per cent was recorded in March, 2013.

As regards inflation, subdued prices of vegetables, cereals and dairy products pulled down the Consumer Price Index (CPI) to three-month low of 8.28 per cent in May.

Commenting on data released today, CII Director General Chandrajit Banerjee said: "The return of industrial growth to the positive terrain is noteworthy and has rekindled the hope of industrial recovery which is critical to lift the economy and mark a return to the path of growth."

Manufacturing, which constitutes over 75 per cent of the index, grew 2.6 per cent in April compared to a growth of 1.8 per cent a year ago.

Production of capital goods, a barometer of demand, grew by 15.7 per cent in April in sharp contrast to a contraction in output by 0.3 per cent in same month last year.

The mining sector grew by 1.2 per cent in April as against a dip of 3.4 per a year earlier.

Power generation increased by 11.9 per cent in the month as compared to 4.2 per cent in April, 2013.

The IIP showed growth of 1.5 per cent in April, 2013.

In March this year, the growth in output contracted by 0.5 per cent after revision of the provisional estimates.

Overall, 14 of the 22 industry groups in manufacturing showed a positive growth in April.

The IIP in 2013-14 has declined by 0.1 per cent mainly due to poor performance of manufacturing sector. In 2012-13, it registered a meagre expansion of 1.1 per cent.

Observing that all the three major segments -- mining, manufacturing and electricity -- have posted positive growth in April, Banerjee said: "Going forward, CII expects that quick and proactive government policies would return the 'feel good' factor and firm up growth."

Ficci President Sidharth Birla said India Inc will be looking forward to "some big-ticket measures by the Government in its forthcoming budget which could send strong signals to investors and restore their confidence in the economy."

Terming the rise in IIP as "encouraging", President of PHD Chamber Sharad Jaipuria said implementation of new policy pronouncements would be critical to achieve future outcomes.

Factory output started to decline in October, when the IIP contracted 1.2 per cent and continued till December. It entered the positive zone in January and slipped into negative territory again in February.

As regards April, the output of consumer goods declined by 5.1 per cent compared to growth of 1.7 per cent a year ago.

The consumer durables segment contracted 7.6 per cent in April as against a decline of 9.6 per cent previously.

Production of consumer non-durables also declined by 3.3 per cent compared with a growth of 11.3 per cent in April last year.

Intermediate goods output expanded 4.4 per cent compared with 2.5 per cent a year earlier. Basic goods grew 6.8 per cent in April against a rise of 1.4 per cent a year ago.

As far as retail inflation is concerned, moderating prices of vegetables, cereals and dairy products pushed down CPI in May to 8.28 per cent down from 8.59 per cent in April.

In February, retail inflation was at 8.03 per cent, followed by consecutive rise in March (8.31 per cent) and April.

Food inflation also fell slightly to 9.56 per cent in May against 9.66 per cent in April.

"A pleasant turnaround in the industrial growth in April and the retail inflation inching down in May provide a perfect field for the new government of Prime Minister Narendra Modi to kick off a smart rebound in the Indian economy," Assocham President Rana Kapoor said.

According to the CPI data, vegetable prices were down by 15.27 per cent as against 17.5 per cent in April. Prices of cereals and its products came cheaper with rate of price rise at 8.81 per cent as against 9.67 per cent a month ago.

Likewise, rate of price rise in milk and milk products remained at 11.28 per cent, slightly lower than 11.42 per cent in April, showed the data.

Among others, food and beverages inflation stood at 9.40 per cent in May versus 9.66 per cent in the previous month; fuel and light prices expanded at 5.07 per cent during the month as against 5.96 per cent rise in April.

However, fruit prices turned costly in May with rate of price rise at 23.17 per cent as against 21.73 per cent a month earlier.

Also, prices of oil and fats went up by 0.91 per cent in May compared to 0.35 per cent rise in the previous month. Protein related items such as eggs, fish and meat had a higher rate of inflation at 10.11 per cent as against 9.41 per cent in April.



"There is some possible improvement in investment cycle going ahead on confidence building, which is marginally reflected in the data today. This kind of data will encourage the government to take steps to boost growth. Core inflation has remained stable, but we know monsoons will be a problem which could push up food inflation. Therefore, CPI inflation is still not at a comfortable level."


"I think it would be premature to call it a trend, though there is a marginal improvement in leading indicators also. For instance, going forward, the auto numbers may look a tad better. Overall, the leading indicator environment is getting more supportive. We expect the IIP (Index of Industrial Production) to improve.

"Going forward, we see improvement more pronounced in second half, with a hope that some of the obstacles on the investment side would be removed. We expect industrial growth around 3.5-3.7 percent for the year.

"As far as the CPI is concerned, I think what has been a surprise is, housing has corrected fairly dramatically month- on-month. Overall, all the momentum indicators on CPI also look comfortable. The key risk is, of course, on El Nino's impact on food (prices).

"I do not expect the RBI to take any action going forward in August. Our base case scenario is no action, we probably have peaked out in policy rates."


"Both IIP and CPI have pleasantly surprised. Production activity may get supported with robust export growth. Additionally, expediting stalled projects and improved business sentiments recently should act as a catalyst in reviving the capital expenditure cycle. Meanwhile, sticky core CPI inflation coupled with risk of deficient monsoons is likely to keep the RBI cautious, thereby maintaining a status quo on policy rates through 2014."


"Underlying price pressures are slowing down, but persistent food price pressure is distorting headline inflation. So, government steps are required to bring down food inflation in line with slowdown in core inflation.

"Given that core inflation is easing means the Reserve Bank of India's monetary policy tightening is working with a lagged effect and so it can afford to be patient on interest rates.

"The IIP growth is led by mining and electricity and the government steps to facilitate mining and electricity output should continue to bear fruit. However, given the issues on data quality of IIP, it is difficult to say this recovery will sustain."


"Both the numbers are certainly encouraging. IIP growth is a tad higher than market expectations due to the usual bunching of capital goods growth. We have to normalise that and then see the data.

"All the components of IIP, including power generation, mining and manufacturing have started showing signs of improvement. Going forward, the pace of improvement will depend on the pace of structural reforms undertaken by the new government.

"Today's data points will not have any bearing on the Reserve Bank of India's (monetary policy) stance because the two critical factors which will determine the RBI's next move will be monsoon -- impact of which will be clear only in August/September -- and the Union Budget, which will give the RBI some indication of the government's fiscal consolidation plans."


- India's new government led by Narendra Modi is looking to revive the economy through higher investment in infrastructure, which it hopes will boost demand in sectors such as cement, steel and power.

- A Reuters poll showed wholesale price inflation rose to 5.4 percent in May, 0.2 percentage points higher than in April. The data is due on June 16 at 0630 GMT.

- Improving consumer sentiment helped car sales post their first annual growth in three months in May.