Industrial production inched up to a three-month high of 2.5% in September, compared with 0.5% a month earlier, aided by an uptick in the usually volatile capital goods segment, showed official data released on Wednesday.
Coming on the back of retail inflation hitting a fresh low of 5.52% last month, against 6.46% in September, the latest pick-up in the Index of Industrial Production (IIP) adds to the feel-good factor generated after Narendra Modi came to power, but it’s still early to predict a turnaround in the economy struggling with structural weaknesses, said analysts.
Although the IIP data marked the sixth straight month of expansion, its best performance in around three years, it has been hugely aided by conducive bases. The sharp drop in the consumer price inflation, too, came on a favourable base (retail inflation was 10.2% in October last year) although analysts took heart from the fact that sequential momentum is flat. The effect of a favourable base will wear off by December but hopefully retail inflation could still come in at lower than 7% in March 2015, given the low global commodity prices.
Most analysts agree that the Reserve Bank of India’s target of a CPI inflation figure of 6% for March 2016 could be achieved earlier. But given that it has resorted to a long-drawn and assiduous battle against inflation, the central bank is unlikely to cut rates until it is fully convinced that the inflation genie is back in the bottle. The next monetary policy review is slated for December 1.
Interestingly, the persistent contraction in radio, TV and communication equipment continues to hurt, as without the 43.8% drop in this segment, the IIP would have grown by 4.9% in September. Analysts had earlier attributed it to the disruption of Nokia’s operations in Tamil Nadu.
Although capital goods output hit a three-month peak, the contraction in the segment in 11 of the 18 months since the beginning of the last fiscal suggests that several of the projects cleared are yet to take off on the ground.
“The decline in growth of IIP, barring capital goods, to 1.2% in September 2014 from 2.1% in August 2014, is symptomatic of the broader sluggishness in economic activity. IIP growth outpaced the 1.9% growth displayed by the core sector industries in September 2014, for the first time in four months, led by a pick-up in manufacturing growth,” said Aditi Nayar, senior economist at ICRA.
Moreover, even in the build-up to the festival season, a 4% drop in consumer goods output in September — recording a contraction in 15 out of the 18 months since last April — suggested a near collapse of private demand.