New Delhi: India's industrial production is expected to be "anaemic" 0.3 per cent for June, partly on account of retailers reducing stocks before the implementation of GST, says a report. Industrial output growth stood at 1.7 per cent in May.
Before the implementation of Goods and Services Tax (GST), destocking was triggered largely owing to a steep fall in demand from consumers as they delayed purchases on expectation of getting better price post the new indirect tax regime, the report said.
"We expect industrial growth to post an anaemic 0.3 per cent in June, slipping from 1.7 per cent last month (May). Production was likely partly impacted by destocking before July 1 GST implementation," Bank of America Merrill Lynch (BofAML) said in a research report.
It further noted that industrial output gap is unlikely to close any time soon as high lending rates are delaying economic recovery. "It is only when lending rates come off sufficiently that stimulation of demand will lead industrial recovery, exhaustion of capacity and investment, in our view," it said.
On price rise, the report said inflation is expected to be muted even after the ongoing spike in tomato prices and the 7th Pay Commission's hike in house rent allowances (HRA).
"On our part, we advise investors to look through the temporary price spikes in tomatoes due to supply dislocations and similar statistical impact on account of HRA implementation," the report said.
BofAML expects 2017-18 inflation to average 3.7 per cent (excluding HRA hike), still well within the RBI's 2-6 per cent range. "Inclusive of the statistical impact of the 7th Pay Commission's hike in house rent allowances, July CPI inflation should work out to 2.5 per cent," the report said.
On account of weak growth and low inflation, the Reserve Bank is expected to cut rates by a final 25 bps on December 6, it noted. The Reserve Bank in its policy review meet this month has lowered its key lending rate by 0.25 per cent, a move which is likely to translate into lower interest rates for home, auto and other loans as also boost economic activity.
