Industrial production recorded good performance for a second straight month in December aided by a favourable base, although the pace of growth slowed to 7.1% from a revised 8.8% in the previous month.
The index of industrial production (IIP) has grown 7% or more in only five of the past 33 months, but analysts are cautious about describing the decent expansion in December as a sustained rebound;
rather they call the 8.4% jump in manufacturing a “catch-up activity” following the disruptions caused by the rollout of the goods and services tax (GST).
In fact, the impressive 16.5% growth of consumer non-durables in December was supported to a considerable extent by the sharp 88.4% expansion in just one small segment: digestive enzymes and antacids. Nevertheless,
the analysts generally endorsed the view that the second half of the current fiscal could witness higher growth than the first half.
Retail inflation eased to 5.07% in January, against 5.21% in the previous month, as lower vegetable inflation kept a lid on price pressure in food articles, according to the data released by the Central Statistics Organisation on Monday. However, sticky core inflation at 5.1% and elevated global crude oil prices pose upside risks to inflation. These apart, the implementation of a Budget proposal to hike the benchmark prices of kharif crops to one-and-a-half times of their costs, monsoon rains and unfavourable base effects (CPI inflation was low in most part of 2017) will drive the inflation movement in the coming months. The central bank, already uncomfortable with potential spillover effect of the Centre’s fiscal deficit slippage in FY18, is only expected to be more hawkish.
Though notorious for volatility, the capital goods segment, with 16.4% growth in December, compared with 9.4% in the previous month, suggested corporate investment may be staging a nascent recovery. However, it was aided greatly by good growth in commercial vehicles due to conducive base effect. The 16.5% jump in consumer non-durables output in December, when durables growth was just 0.9% even on a favourable base, suggests rural consumption is perhaps improving at a faster pace than urban demand.
At 6.7%, the growth in infrastructure and construction goods may have slowed from the previous month, but the expansion rate was still the highest since October 2016 (barring 13.9% in November 2017).
DK Pant, chief economist at India Ratings & Research, said: “Going forward, the main factor will come into play somewhere around June when the government will announce MSPs (minimum support prices) for crops. We are still holding our view of 4.6% CPI inflation for 2018-19. However, the impact of the MSP is yet to be factored in.”
Aditi Nayar, principal economist at Icra, said: “… a part of the spike in manufacturing growth in November was a catch up because of the muted volumes in the earlier months of FY18, which would ebb away, even as a favourable base and renewed growth momentum would result in moderately healthy volume growth in several sub-sectors in the remainder of FY18.”