The core sector output in May rose 4.4% — a six-month high — as seven of the eight industries that constitute the sector registered positive growth. Growth in these industries’ output had hit an 18-month trough of -0.4% in April, a month when industrial output growth beat expectations to touch a two-month high of 4.1%.
The latest data on production by the infrastructure industries indicate a slight recovery in industrial activity and pick-up in demand, giving some credence to the government’s claim that the economy has turned the corner.
Pertinently, the core-sector output had grown 5.7% in April last year and 3.8% in the following month. June 2014 saw the production by these industries that have a combined weight of 38% in the index of industrial production grow by 7.3%, meaning that only a strong recovery would produce good numbers for June, 2015.
Analysts said although it was too early to pronounce a sustained rebound in investment and private demand, the growth in consumer durables output in April after 10 straight months of contractions signals a recovery in rural consumption.
According to government data released on Tuesday, barring natural gas production (which shrank 3.1% year-on-year), coal (7.8%), crude oil (0.8%), refinery products (7.9%), fertilisers (1.3%), steel and cement (2.6% each) and electricity (5.5%) recorded moderate to robust growth in May.
The previous high was 6.7% in November last year and the low was a negative growth of 0.6% in October 2013. For the full 2014-15 fiscal, core sector output slowed to 3.6% from 4.2% in the previous financial year.
Retail inflation in May increased to 5% year-on-year (from 4.9% in April) due to a rise in core inflation and harder crude. However, HSBC Global Research had said that growth picking up on firmer consumer demand and government capex spending, along with rising inflation risks, is a clear recipe for keeping the central bank on hold.
A durable reduction in inflation through reforms can open up space for further rate cuts, HSBC said, adding that until then, the RBI has no option but to sit tight. Fortunately, food inflation was relatively muted, despite disruptive rains, blunting the rise in the headline print, it said. Going forward, food inflation is at risk from weak rains, but the severity of the impact depends on how well this risk is mitigated, HSBC said.