IIP remains a worry, retail inflation eases to two-year low

Published Feb 13, 2014, 2:46 am IST
Updated Mar 19, 2019, 9:01 am IST
Industrial output remains in the negative territory for the third month in a row.

New Delhi: Showing no sign of economic recovery, industrial output remained in the negative territory for the third month in a row by contracting by 0.6 per cent in December, even as retail inflation eased to two-year low of 8.79 per cent in January on account of fall in food prices.

Worried over continued decline in Index of Industrial Production (IIP), mainly due to a fall in manufacturing, India Inc stepped up its demand for a rate cut by the Reserve Bank to boost growth. 


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The decline in factory output, which began in October with IIP shrinking by 1.6 per cent, continued the same trend in November with a 1.3 per cent contraction, followed by 0.6 per cent in December In December 2012, IIP had contracted by the same margin of 0.6 per cent.

As regards retail inflation, the Consumer Price Index (CPI) data revealed that it fell for the second consecutive month and eased to 24-month low of 8.79 per cent in January mainly on account of a a drop in food prices. It was 9.87 per cent in December, down from 11.16 per cent a month ago.

Expressing disappointment over the IIP data, industry chamber CII made a case for 'an accommodative monetary policy to spur demand and revive investment activity, especially as inflation has started receding'.

According to the data released by the government, contraction in IIP during November 2013 has been revised to 1.3 per cent, from the provisional estimate of 2.1 per cent dip.

"IIP continues to show low growth for the past 7-8 months, mainly because of slump in manufacturing. At this point of time, there is a need to boost fresh investments to bring back factory output to the positive terrain," TCA Anant, Chief Statistician of India said.

Decline in industrial production is a matter of concern and it highlights weak demand for big ticket items and sustained downturn in investment activity, said Aditi Nayar, Senior Economist, ICRA.

"Anaemic manufacturing activity in this fiscal remains a clear headwind to GDP growth," she added. Pulled down by the manufacturing sector, industrial output for the April-December period of the current fiscal contracted by 0.1 per cent against a growth of 0.7 per cent in the same period of 2012-13.

The manufacturing sector, which constitutes over 75 per cent of the index, declined by 1.6 per cent in December last year against a contraction of 0.8 per cent in the year-ago period. The consumer goods output declined by 5.3 per cent in December, compared to a contraction of 3.6 per cent in the same month in 2012.

The consumer durables segment contracted by 16.2 per cent in the month against a decline of 8.1 per cent in the comparable period of 2012. Eight out of 22 industry groups in the manufacturing sector showed a negative growth in December.

In April-December period, manufacturing contracted 0.6 per cent compared to a growth of 0.6 per cent in same period of 2012. Manufacturing sector’s weak performance this year is driven by a sharp slowdown in industries that are mostly dependent on domestic demand such as food & beverages, radio, TV & communication apparatus, motor vehicles & trailers, furniture manufacturing, and office machinery, says a Crisil Research note.

CII Director General Chandrajit Banjerjee said: "The negative growth of the capital goods and the consumer durables sector reinforces the view that the escalating interest costs are adversely impacting investment decisions in the respective sectors."

The consumer price index data showed that vegetable prices on annual basis rose 21.91 per cent in January, a slower pace than 38.76 per cent recorded in the previous month. Fruit prices rose 15.6 per cent in January compared to 14.64 per cent in December.

Pulses were dearer by 2.59 per cent, cereals by 11.42 per cent and milk products by 9.82 per cent in the month under review.

Protein-rich items such as eggs, meat and fish became dearer by 11.69 per cent in January. The rate of inflation in this segment was slightly higher at 12.64 per cent in December.

Retail inflation was in double digits in October (10.17 per cent and November (11.6 per cent). The data showed that the provisional inflation for rural and urban areas for January was 9.43 per cent and 8.09 per cent, respectively.

Data on inflation based on the wholesale price index is scheduled for release on Friday. PHDCCI President Sharad Jaipuria said: "The decline in CPI inflation from 9.87 per cent in December, 2013 to 8.79 per cent in January, 2014 is inspiring in anticipation that RBI should soften its monetary policy stance, going forward."

The Reserve Bank factors both retail and wholesale price based inflation data in its monetary policy. It is scheduled to announce the next policy on April 1.

Recently, a RBI appointed committee has suggested the central bank should focus on CPI inflation and aim to bring it down to 8 per cent by January next year, and to 6 per cent by January 2016.