The index of industrial production (IIP), for its erratic movement and the generally subdued levels, may have shed a bit of its status as a high-frequency indicator of the state of economy, but it nevertheless positively surprised analysts on Friday, with the November figure coming in at a solid 8.4% higher than a year ago, against market expectations of around 5%. The November growth in industrial output is at a 25-month high; the previous high was 9.9% in October 2015. IIP had risen 5.1% y-o-y a year ago and a (revised) 2% in October. Manufacturing, which grew an impressive 10.2% compared with 4% a year ago; consumer non-durables, which grew 23.1% (3.3%); and infrastructure/construction goods that expanded 13.5% (3.9%) bore out an uptick in investment and consumption which other indicators had signalled earlier.
Manufacturing PMI had scaled a five-year high in December and services PMI recovered from a contraction; exports rose as much as 18.4% in November and core-sector industries too have looked up of late, while non-food credit growth has risen too. The Central Statistics Office has recently forecast that India’s economic growth in real terms will hit a four-year trough of 6.5% this fiscal, while nominal gross domestic product will expand at the slowest pace since 2012-13. The real GDP growth is projected at 7% for the second half of this fiscal, compared with 6% in the first half, in what appears to be a somewhat strong recovery after battling the odds of the GST and demonetisation. With the November IIP surprising on the upside, some analysts also see an upside to the 6.5% GDP forecast by CSO for FY18. However, markets may not really cheer Friday’s sets of data: As per the Consumer Price Index (CPI), retail inflation which had accelerated in November to a 15-month high of 4.88%, rose further to 5.21% in December.
Though the main driver of the uptick was faster rises in prices of food products — the CPI food index rose an annual 4.96% in December versus 4.35% in November — core inflation (non-food/non-manufactured goods) also witnessed a worrisome increase to 5.2% in December versus 4.9% in the previous month. Vegetables inflation rose to 29.1% in December compared with 22.5% in the previous month and fuel inflation remained sticky at 7.9%. The RBI’s monetary policy committee, which avers on its objective of keeping retail inflation close to 4% on a sustained basis, in the latest (December) policy review estimated it to be in the range of 4.3-4.7% in Q3 and Q4 of this year, compared with 4.2-4.6% seen in the October policy review. The latest data gave credence to the MPC/RBI view that “moderation in inflation excluding food and fuel observed in Q1 of 2017-18 has, by and large, reversed. There is a risk that this upward trajectory may continue in the near term.”