In a double whammy to the economy, industrial output growth plunged to 0.1% in March while retail inflation soared to 5.39% in April, which may spoil the chances for any immediate rate cut by RBI.The factory output growth decelerated mainly due to poor performance of manufacturing and mining sectors coupled with contraction in capital goods production, while higher food prices pushed the inflation higher, reversing the recent downward trend
The retail inflation in March stood at 4.83%, the lowest in six months. In April 2015, the rate of price rise was at 4.87%.Commenting on the surge in retail inflation, Economic Affairs Secretary Shaktikanta Das said, it is “subject to further analysis, perhaps some CPI inflation base effect also accounts for this. In any case, overall core inflation is below 5% and also overall number is also less than 5.5%. It’s within the target.”Food inflation rose to 6.32% in April against 5.21% in March, official data showed.
Factory output measured in terms of Index of Industrial Production (IIP) was 2.5% in March last year, as per data released by Central Statistics Office (CSO).The index had registered a growth of about 2% in February this year.For the entire 2015-16 fiscal, the factory output grew at 2.4%, down from 2.8% in the previous fiscal.The manufacturing sector, which accounts for over 75% of the index, declined by 1.2% in March against a growth of 2.7% in same month a year ago. The sector has not done well in 2015-16 as it grew by just 2% compared to 2.3% in previous year.
Mining sector output too contracted by 0.1% in March compared to a growth of 1.2 a year ago. In 2015-16, the sector grew at 2.2% up from 1.1% in previous fiscal.Capital goods segment, which is a barometer of investment, contracted by 15.4% in March as against a growth of 9.1% year ago. During 2014-15, the output of these goods also declined by 2.9% compared to a growth of 6.3% in previous fiscal.Overall, 12 of the 22 industry groups in manufacturing sector showed positive growth in March 2016 as compared to a year ago.Commenting on the twin macro economic data, industry body Assocham termed the figures IIP number as uneven and fragile.
“The macro picture, as reflected by negligible up-tick in industrial growth thanks to a sharp deceleration in capital goods and other vital segments for March and retail inflation expanding at a much higher pace than expected, looks challenging once again,” Assocham President Sunil Kanoria said in a statement.He further said, “Widespread drought has definitely affected the food prices sending the CPI upwards, hoping normal Monsoon should bring in comfort level. Overall, the big picture looks far more difficult making it imperative for the government to bring in policy reforms and demand push measures.”
“The government must also front-load its capital expenditure for the fiscal 2016-17 to stimulate the economy, he added.According to IIP data, the performance of consumer goods segment was also dismal as it recorded a meager growth of 0.4% in March compared to a contraction of 0.6% a year ago. During 2014-15, the output of these goods grew at 3% compared to a decline in production by 3.5%.
However, consumer durables performed well and recorded a growth of 8.7% in March this year compared to contraction of 4.6%. During the entire fiscal, the output of these goods grew by 11.2% compared a decline in production by 12.6%.The consumer non-durable goods output contracted by 4.4% in March compared to a growth of 1.9% in same month a year ago. During the fiscal under review, the output declined by 1.7% compared to a growth of 2.8% in 2014-15.
On the other hand, food inflation rose to 6.32% in April against 5.21% in March. The rate of price rise in vegetables quickened to 4.82% while fruits turned costlier by 1.66% in April.The accelerated pace of inflation may play a spoilsport to any further interest rate cut by RBI, even as a sharp plunge in industrial production growth may still add to clamour for easing of monetary policy.