Industrial Production Shows Highest Mark in 17 Months

A robust performance by the manufacturing sector took India’s industrial production growth to a 17-month high of 8.4 percent in November, but retail inflation, also at a 17-month high of 5.2 per cent in December, dampened the euphoria. The continuous rise in consumer inflation may prompt the Reserve Bank of India, which is aiming to keep inflation within four percent, to hold interest rates at its February policy review meet, which will be held just days after the presentation of the Union Budget on February 1, reports the PTI.

The manufacturing sector, which constitutes 77.63 percent of the Index of Industrial Production (IIP), recorded an impressive growth of 10.2 per cent in November as compared to four percent a year ago. Among the sectors, pharmaceuticals clocked the highest growth of 39.5 per cent, followed by 29.1 per cent in computer, electronic and optical products and 22.6 per cent in the automobile segment. Capital goods output, which is a barometer of investment, too grew at a higher rate of 9.4 per cent in November as against 5.3 per cent a year ago. As regard retail inflation, it crossed the RBI’s comfort level and rose to 5.21 per cent in December on a rise in the prices of food items, egg and vegetables, dashing hopes of an interest rate cut in the near future. The retail inflation, based on Consumer Price Index (CPI), was 4.88 per cent in November 2017. In December 2016, it was 3.41 per cent. The RBI has been asked by the government to keep inflation at four per cent, plus or minus two per cent; and its rise beyond the comfort zone will put pressure on the central bank to decide against an interest rate cut.

The central bank is slated to come out with its next monetary policy review on February 7, 2018. Earlier, data released by the Central Statistics Office (CSO) showed inflation for the food basket increased to 4.96 per cent in December 2017 from 4.42 per cent in the preceding month. The previous high of CPI-based inflation was recorded at 6.07 per cent in July 2016. Similarly, the previous high industrial output growth was recorded at 8.9 per cent in June 2016. Data suggests that eggs, vegetables and fruits became costlier. The factory output, measured in terms of the Index of Industrial Production (IIP), grew 5.1 per cent in November 2016, as per CSO data. Meanwhile, the IIP growth for October 2017 has been revised downwards to 2 per cent from the provisional estimates of 2.2 released last month.

Consumer non-durables, which are mainly  FMCGs, showed an output growth of 23.1 per cent in November 2017 as against 3.3 per cent in the comparable month of 2016. However, the mining sector production growth slowed to 1.1 per cent during the said month from 8.1 per cent a year ago. Electricity generation growth too slowed to 3.9 per cent in November from 9.5 per cent a year earlier.

The production growth of consumer durables, mainly TVs, refrigerators and washing machines, also slowed to 2.5 per cent from 6.8 per cent. As per a use-based classification, the growth rates in November 2017 are 3.2 per cent in primary goods, 5.5 per cent in intermediate goods and 13.5 per cent in infrastructure/ construction goods.