Industrial growth at 6-month high of 3.4 per cent in April
NEW DELHI: India’s industrial output surged unexpectedly to a six-month high in April as it expanded by 3.4%, bringing some relief to policy makers gearing up to present the budget in July. Retail inflation inched up to a seven-month high in May but remained within the RBI’s comfort zone, leaving room for more rate cuts.
Official data released by the statistics office on Wednesday showed industrial output accelerated in the first month of FY20 from 0.4% in the preceding month but slower than 4.5% in April 2018.
Experts Advise Caution
Retail inflation moved up to 3.05% in May compared with the revised figure of 2.99%, up from 2.92% estimated earlier, in April, remaining below the Reserve Bank of India’s target rate of 4%.
The Reserve Bank of India last week cut the policy rate by 25 basis points for the third time in a row and shifted its stance to ‘accommodative’, hinting at scope for further reductions as part of efforts aimed at reversing a growth slump.
India’s GDP slowed to a fiveyear low of 6.8% in FY19 and getting growth back on track will be one of finance minister Nirmala Sitharaman’s prime objectives when she presents the budget on July 5.
Food inflation, which has been accelerating since December last year, rose to an 11-month high in May, driven largely by the prices of vegetable and pulses.
Vegetable inflation at 5.5% was also at an 11-month high while pulses saw inflation after a gap of 29 months. The government has already moved to contain the price of pulses by releasing additional buffer stocks.
Prices of fruit and vegetable will likely track progress of the monsoon, which started a week late and has been interrupted by Cyclone Vayu, scheduled to make landfall on Thursday, according to the weather office.
Experts warned against reading too much into the numbers.
“IIP definitely is much better than we expected but a sudden change in direction in one month doesn’t make a story. Most of the advance indicators that we generally look at have been underperforming. It is very difficult to see whether these numbers would sustain for a significant period of time,” said Indranil Pan, chief economist, IDFC Bank. “For April, manufacturing PMI (Purchasing Managers’ Index) had actually gone down but manufacturing numbers have actually gone up, so taking all this together, it is very difficult to see whether these numbers would sustain for a significant period of time.”
A decline in core inflation, excluding food, fuel and light, and transport and communications, to a 23-month low of 4.37% indicates that demand conditions have weakened considerably.
Even services inflation, a major driver of retail inflation in the second half of FY19, has slowed.
“Caution must be exercised as this cannot be interpreted as a revival in consumption spending as the auto data released so far is not encouraging,” CARE Ratings chief economist Madan Sabnavis pointed out. Passenger vehicle sales fell 21% in May to an 18-year low.
RBI TO AID GROWTH
Economists said the central bank will likely continue with a policy that bolsters the economy.
“Ind-Ra believes RBI may continue to pursue policy that would be supportive of growth,” said Sunil Kumar Sinha, principal economist, India Ratings. Although impact of monetary policy is felt with a lag, India Ratings believes there is still a scope for one more rate cut in FY20, Sinha said.
“On the whole, the picture is not very encouraging on the industrial production front,” he said. “Given the fluctuation in the IIP growth data, it is difficult to believe that we are on our way or anywhere near to a broad-based and sustainable industrial recovery.”
The jump in growth was mainly on account of an improvement in mining and power generation, government data showed. Mining expanded 5.1% compared with 3.8% in the year-ago month. Power generation rose 6% against 2.1% in the year earlier.
However, the manufacturing sector, with a 77% weight, remains an area of concern, growing by just 2.8%. Capital goods, often taken as barometer for investment, slowed to 2.5% from 9.8% in April 2018. Reviving investment is seen as vital to economic recovery.
Manufacturing segments such as motor vehicles, fabricated metal products, rubber and plastics products and paper products contracted. However, foods products, apparel, wood products, printing or reproduction showed doubledigit growth. Slower growth was recorded in infrastructure and construction goods, and the consumer durable and consumer non-durable segments.
( Originally published on Jun 12, 2019 )