Three cheers for Indian economy: Low Inflation, positive IIP and above normal monsoon

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April 13, 2016 9:45 AM

The IIP (Index of Industrial Production) numbers have given a positive surprise with a growth of 2 per cent for the month of February 2016.

Indian economy - IIP, CPI inflation, MonsoonAfter three months of drop the rise in industrial output is certainly a positive word for the economy. (Express Photo)

The IIP (Index of Industrial Production) numbers have given a positive surprise with a growth of 2 per cent for the month of February 2016. After three months of drop the rise in industrial output is certainly a positive word for the economy. The rise in IIP got a boost from 9 per cent growth in electricity generation and a 5 per cent growth in mining output. The IIP numbers had seen a decline of 0.5 per cent in January 2016. If we consider the cumulative data the IIP numbers from April to February 2016 the growth is at 2.6 per cent, little lower than 2.8 per cent reported in the same period previous years.

What comes as another surprise is a further drop in retail inflation. The CPI inflation for March 2016 has fallen to 4.83 per cent from 5.26 per cent a month ago. Though there were already expectations of falling inflation prompting RBI to cut repo rate by 25 bps in the recent monetary policy, the CPI inflation paves way for further easing of rates during the rest of the year. We feel RBI has room for another 25 bps rate cut in coming months. However, that would be possible only after further reduction in lending rates by banks.

The third and very encouraging set of news has been the expectations of above-normal monsoon this year. After two consecutive years of below-normal rainfall, the IMD expects monsoon to be 106 per cent of normal. We think things are falling in place for the Indian economy and better days are ahead.

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