Growth engine gets twin boost from IIP, CPI data
India’s industrial growth accelerated in January while inflation eased for the second month running in February, providing a twin boost to the economy and suggesting overall economic growth could accelerate further from the five-quarter high recorded in the October-December period.
Industrial production growth rose higher than expected to 7.5% in January from 7.1% in the previous month, data released by the government showed, on the back of strong manufacturing. The simultaneously released Consumer Price Index (CPI) showed a further decline in retail inflation to 4.44% in February from 5.1% in the previous month.
“This looks like an early sign of industrial revival,” said Devendra Kumar Pant, chief economist at India Ratings, a Fitch Group company. “It looks like post demonetisation and goods and services tax (GST) implementation, finally the industrial sector is gaining traction.” India reclaimed the title of fastestgrowing major economy in the October-December quarter by recording 7.2% growth compared to China’s 6.8%.
This is the third successive month of 7%-plus industrial growth in India. The economy is forecast to grow 6.6% in the current year, though with growth picking up, the final number could be higher. “Three successive months of growth is proof enough that we have recovered. This indicates sustainability to an extent,” said Madan Sabnavis, chief economist at CARE Ratings.
The data should bolster the government that faces an election next year. In terms of industries, 16 out of 23 industry groups in the manufacturing sector showed positive growth in January 2018. Overall, the manufacturing sector grew 8.7%, electricity 7.6% but mining was flat at 0.1%.
Capital goods surged 14.6% compared with a 0.6% contraction in the year-ago period. Consumer durables contributed to the acceleration with 8% growth, indicating a recovery in urban demand. Consumer durables contributed to the acceleration with 8% growth, indicating a recovery in urban demand. Consumer non-durables sector was up 10.5%, reflecting rural buoyancy.
“Visible improvement in industrial output, which rose to 7.5% at the onset of the New Year as against 3.5% last year, augurs well for the return of broad based recovery in industrial performance during the year,” the Confederation of Indian Industry (CII) said in a release.
INFLATION FEARS RECEDE
The slide in inflation from a 17-month high of 5.21% in December to within sight of the Reserve Bank of India’s target 4% rate should cause price worries to recede. “This lowers pressure on the central bank to shift gears to a hawkish stance at the April review, with a similar tune likely to extend into June,” said Radhika Rao, India economist at DBS Bank. “FY19 numbers will largely be rangebound between 4.5-5%, providing the headroom to keep rates on hold in 2018.”
The central bank has kept interest rates stable after a 25 basis point cut in August. Stable interest rates will support growth. A basis point is 0.01 percentage point. The decline was due to the fall in food inflation to 3.26% last month compared with 4.7% in January. Fuel and light inflation was 6.8% in February against 7.58% in January, while housing inflation was 8.28%, almost unchanged form 8.33% the previous month.
The RBI’s Monetary Policy Committee last month expressed concern about continued inflationary risks, citing high food and global crude oil prices and the government’s decision to increase spending for the year starting April to support a struggling farm sector.
Inflation in vegetables was 17.57% last month, down from 26.97% in January, and for fruits it was 4.80% against 6.24%. Milk and milk products were less expensive, with an inflation print of 3.8%, while that of cereals and products was 2.10%, meat and fish was 3.31% and eggs at 8.51%. Inflation for the fuel and light category was at 6.80% in February against 7.73% in January.
The Economic Times, New Delhi, 13th March 2018