IIP Growth Inches Up, Inflation Remains Steady

Factory output accelerated to 4.3% in July; retail inflation at 3.21% in August

IIP Growth Inches Up, Inflation Remains Steady
IIP Growth Inches Up, Inflation Remains Steady
Yagnesh Kansara - 12 September 2019

Mumbai, 12 September 2019: India’s Index of Industrial Production (IIP, factory output) accelerated to 4.3 per cent in July from a downward-revised 1.2 per cent a month ago while retail inflation inched up marginally to 3.21 per cent in August from 3.15 per cent in the previous month, remaining within the central bank’s comfort zone. This could lead to another round of rate cuts by the Reserve Bank of India (RBI) in October, given the state of the economy.

India’s economy reported its weakest growth in more than six years at 5 per cent in the June quarter and slowed for the sixth straight quarter, prompting the government to announce a series of measures to spur economic activity.

This is the 13th month in a row for a sub-4 per cent retail inflation figure. The IIP grew 6.5 per cent in July 2018.

Economists are of the view that inflation maintained at the lower level is because of consumption (demand) slowing down across the sectors including fast moving consumer goods (FMCG) sector. As far as slowing down of IIP, they opined that the private sector investment (gross capital formation) has remained at abysmally low level since last many quarters and it is unlikely to pick up soon looking at the economic trend prevailing globally.

The RBI has projected India’s gross domestic product growth for 2019-20 at 6.9 per cent—in the range of 5.8-6.6 per cent for the first half of 2019-20 and 7.3-7.5 per cent for the second half. While most analysts and financial institutions have estimated a growth rate between 6.5 per cent and 7 per cent for 2019-20, Moody’s has pegged GDP growth at 6.4 per cent for the same period.

During July, manufacturing made a strong comeback, growing at 4.2 per cent, while electricity surprisingly decelerated, growing at only 4.8 per cent. Mining output grew at a robust pace of 4.9 per cent during the month. The pick-up in growth seems to have come on the back of intermediate goods, which grew in the double digits at 13.9 per cent even as capital goods contracted by 7.1 per cent. Consumer durables also shrank 2.7 per cent due to the slump in automobile sales while consumer non-durables grew at a healthy pace of 8.3 per cent.

On the retail inflation side, food inflation quickened to 2.99 per cent in August from 2.36 per cent a month ago on the back of rising prices of meat and fish, vegetables and pulses.

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