Industrial output surged 6.4% year-on-year in August — the highest since October 2012 — showed official data released on Monday, beating analyst expectations and providing a robust data pointer to a rebounding economy.
What pleasantly surprised analysts was a 21.8% expansion in capital goods and a 6.8% rise in consumer goods in August, albeit aided by favourable bases, as the two segments had contracted 10% and 6.2%, respectively,a year before. Nevertheless, given that the usually volatile capital goods segment has witnessed growth in nine out of 10 months through August suggested enhanced government spending was starting to have an impact. The growth in the index of industrial production (IIP) in August, however, was much higher than a 2.6% expansion in the core sector, which contributes 38% to IIP.
Retail inflation moved up to 4.41% in September, compared with a revised 3.74% in the previous month. Food inflation in the consumer price index (CPI) remained surprisingly subdued (it rose just 3.88% y-o-y in September, compared with 2.2% in August) despite deficient rains, with analysts now predicting the headline inflation to undershoot the central bank’s expectation of 5.8% by January 2016. However, since RBI governor Raghuram Rajan has already “frontloaded” monetary easing in the form of a sharper-than-expected cut in the repo rate by 50 basis points this month, it’s unlikely to go for another round of easing action anytime soon, said analysts.
The latest data showed IIP grew 4.1% during April-August, compared with 3.1% a year earlier, despite the trimming of July growth to 4.1% from 4.2% announced earlier. This also corroborate a robust indirect tax mop-up, which grew 35.8% in the first half of this fiscal from a year before, and 11.5% after stripping off the new revenue-enhancing measures announced in the Budget in the form of rise in tax rates.
Given that manufacturing rose a robust 6.9% y-o-y in August, compared with 4.6% in the previous month, suggests enhanced capacity utilisation by companies, sustained growth in which is crucial to recovery in the capex cycle.
Mining, too, grew 3.4% y-o-y in August, compared with 0.9% in July. Electricity generation grew 5.6% y-o-y in August, higher than 4.1% in the previous month. However, expansion in power generation was much lower than 12.9% in August last year (which incidentally turned out to be the unfavourable base for the calculation of the growth in this segment for August this year).
In CPI data, core inflation witnessed a pick-up to 4.3% in September from 4.1% in August.