1. Retail inflation at record low, industrial output up

Retail inflation at record low, industrial output up

Retail inflation fell to a record low of 3.78 per cent in July and industrial production hit a 4-month high of 3.8 per cent in June...

By: | New Delhi | Published: August 12, 2015 9:36 PM
IIP

Factory output, as measured by the Index of Industrial Production, expanded by 3.8 per cent in June on sharp rebound in demand for consumer goods. IIP was however lower compared to 4.3 per cent in June last year. (Reuters)

Retail inflation fell to a record low of 3.78 per cent in July and industrial production hit a 4-month high of 3.8 per cent in June, which may bring cheer to investors and add to the clamour for interest rate cut by RBI.

Retail inflation rose by 3.78 per cent year-on-year in July, slowest pace on record, helped by lower food prices of certain items including of vegetables, fruits and cereals.

At the same time, factory output, as measured by the Index of Industrial Production, expanded by 3.8 per cent in June on sharp rebound in demand for consumer goods. IIP was however lower compared to 4.3 per cent in June last year.

The data came today admist a political logjam in Parliament that has stalled key reform measure of GST that will create one of the world’s largest single markets.

The twin macro-economic indicators strengthen government and industry’s call to Reserve Bank Governor Raghuram Rajan to cut interest rates. Rajan kept rates unchanged this month to contain inflation, third-highest rate in Asia.

Finance Minister Arun Jaitley said the growth in manufacturing is a positive development for the economy. “It shows that the economy is firmly on the growth path.”

A top official at the ministry said: “We have maintained that high interest rates are hurting the economy. There is case for interest rate to come down sharply.”

CII Director General Chandrajit Banerjee said, “Easing of the July retail inflation…should motivate the RBI to resume its rate easing cycle in its next monetary policy especially as the capital goods sector is in the red indicating that new business orders are expanding at a notably slower pace as high interest costs are adversely impacting investment decisions.”

According to the data released by Central Statistics Office, the IIP growth for May has been revised downwards to 2.5 per cent from the earlier estimate of 2.7 per cent.

inflation

Retail inflation rose by 3.78 per cent year-on-year in July, slowest pace on record, helped by lower food prices of certain items including of vegetables, fruits and cereals. (Reuters)

For the first quarter (April-June) of the current fiscal, the industrial production is at 3.2 per cent, as compared to 4.5 per cent growth in the year-ago period.

Manufacturing, which constitutes over 75 per cent of the index, grew at 4.6 per cent in June compared to 2.9 per cent in the same month last year. During the April-June period, the sector has grown 3.6 per cent, compared to 3.9 per cent in the year-ago quarter.

In terms of industries, 16 out of 22 groups in the manufacturing sector have shown positive growth in June, as compared to the same month of last fiscal.

As for food inflation, as measured on Consumer Food Price Index for July, it fell to 2.15 per cent as against 5.48 per cent recorded in the previous month.

Commenting on the data, Assocham Secretary General D S Rawat said: “Uncompetitive interest rates affect the credit availability and its cost to the corporates, especially the SME sector.”

As per CSO numbers, output of capital goods, a barometer of investment, contracted by 3.6 per cent compared to 23.3 per cent growth in the same month last year. For the April-June period, the capital goods production is up at 1.5 per cent, compared to 13.7 per cent growth in the year-ago period.

The mining sector output contracted by 0.3 per cent in June compared to 4.8 per cent growth in the same month of last fiscal. In the April-June period it has grown at 0.7 per cent, compared to 2.9 per cent in same period last fiscal.
Power generation growth too slowed to 1.3 per cent in June compared to 15.7 per cent in the same month a year ago.

During April-June, it grew at 2.3 per cent compared to 11.3 per cent in the three month period a year ago.

Overall consumer goods output grew by 6.6 per cent in June compared to a contraction of 8.8 per cent in the month a year ago. During April-June the consumer goods output grew by 2.4 per cent compared to a decline in production by 3.2 per cent.

The consumer durables goods output grew at 16 per cent in June compared to a contraction of 23.3 per cent in the month a year ago. In April-June quarter, the segment has grown by 3.7 per cent compared to a contraction of 9.5 per cent in the same period last year.

The consumer non-durable goods grew by 1.3 per cent in June compared to 1.9 per cent growth in the same month a year ago. During April-June, the output of these goods grew by 1.6 per cent compared to 1.3 per cent a year ago.

Prices of vegetables fell sharply during the month from a year ago, with inflation printing a negative 7.93 per cent.

Fruits also turned cheaper by 1.45 per cent during the month compared to the same month last year.

However, prices of protein-rich items such as pulses remained higher as inflation rose to 22.88 per cent. Also, meat and fish prices turned costly by 7.02 per cent.

Among others, sugar and confectionery prices contracted by 12.30 per cent.

India Inc hopes RBI to cut rates after robust IIP data

With industrial production hitting a 4-month high of 3.8 per cent in June, India Inc today said it indicates revival in industrial activity on the back of improved performance of manufacturing, and should motivate the RBI to slash interest rates.

Terming the the outcomes of the recent RBI policy review as “slightly disappointing”, Assocham said the central bank should have reduced the rates a bit to provide a fillip to the industrial growth.

“It must be realised that uncompetitive interest rates affect the credit availability and its cost to the corporates, especially the SME sector,” Assocham Secretary General D S Rawat said.

Industrial production expanded at a 4-month high rate of 3.8 per cent in June due to improvement in manufacturing activity.

Measured in terms of the Index of Industrial Production (IIP), industrial production had grown 4.3 per cent in June last year, as per the data released by Central Statistics Office (CSO) today.

CII Director General Chandrajit Banerjee said the rise in industrial production, albeit moderate, indicates that the industrial recovery is gathering pace based on the improved performance of the manufacturing sector.

“This should motivate the RBI to resume its rate easing cycle in its next monetary policy especially as the capital goods sector is in the red indicating that new business orders are expanding at a notably slower pace as high interest costs are adversely impacting investment decisions,” Banerjee said.

The manufacturing sector which constitutes over 75 per cent of the index, grew at 4.6 per cent in June compared to 2.9 per cent in the same month last year.

During April-June period, the sector grew by 3.6 per cent compared to 3.9 per cent in the year-ago quarter.

“There are some visible signs of growth in manufacturing and we hope that this momentum could be sustained.

“However, the turnaround in investments will take some more time and efforts should be to expedite infrastructure and other projects and provide a more simplified business environment for starting and operating business,” Ficci President Jyotsna Suri said.

According to Banerjee, for investment activity to pick up pace, it is necessary that the government initiates investor friendly reforms and takes steps to expedite the execution of approved projects by accelerating the pace of reforms including in the area of land, labour and environment.

Besides, he said, public investment in infrastructure including construction should be augmented to restart the virtuous cycle of growth.

Further, priority should also be given to improving the ease of doing business, introducing bankruptcy laws, facilitate ease of entry and exit so that India becomes an attractive destination for doing business, Banerjee said.

“It is felt that a complete recovery of the industrial production still seems to be a distant dream,” Rawat said.

However, the output of capital goods, a barometer of investment, contracted by 3.6 per cent compared to 23.3 per cent growth in the same month last year.

For the April-June period, the capital goods production is up at 1.5 per cent, compared to 13.7 per cent growth in the corresponding period a year ago.

“CII is somewhat concerned about the steep decline in the output of the capital goods sector which has slipped to the negative territory after showing positive growth over the last few months.

“This indicates that new investments are still not happening and the firming up of the investment cycle is still some distance away. The subdued growth of mining and electricity sector is also disconcerting,” the industry body said.

Industry bodies also hailed as a “major positive” the turnaround of the consumer goods segment.

Overall consumer goods output grew by 6.6 per cent in June compared to a contraction of 8.8 per cent in the month a year ago. During April-June the consumer goods output grew by 2.4 per cent compared to a decline in production by 3.2 per cent.

The consumer durables goods output grew at 16 per cent in June compared to a contraction of 23.3 per cent in the month a year ago. In April-June the segment grew by 3.7 per cent compared to a contraction of 9.5 per cent in the period last year.

Senior economist at ICRA Aditi Nayar said the IIP growth has remained sub-5 per cent in the current calendar year, highlighting that a deep-seated industrial recovery is yet to take root.

Besides, commenting on the retail inflation, which fell to multi-year low of 3.78 per cent in July, economist at Deloitte Rishi Shah said while the decline in inflation was expected on a positive base effect, the situation on the food front has been considerably better due to the better than expected monsoons.

Devendra Kumar Pant, Chief Economist, India Ratings & Research said the CPI inflation at 3.78 per cent in July was much below expectations and was mainly due to sharp fall in food inflation.

“This will have a favourable impact on bond pricing and increase in probability of monetary easing,” he said.

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