There are still no sign of turnaround in the Indian economy as industrial production contracted by 1. 6 per cent in May, while retail inflation inched up to 9.87 per cent in June mainly due to rise in vegetable and fruit prices.
While the Index of Industrial Production (IIP) contracted by 1.6 per cent in May, the lowest factory output in 11 months, the trade figures suggest 4.6 per cent decline in exports in June. The retail inflation inched up to 9.87 per cent in June mainly due to rise in vegetable and fruit prices.
These key data will have a bearing on first quarterly monetary policy review to be unveiled by the Reserve Bank on July 30. The central bank is faced with a tough task of maintaining a balance between pushing growth and containing inflation.
Commenting on the data, Chairman of the Prime Minister’s Economic Advisory Council (PMEAC) C Rangarajan said: “The impact of various measures taken in the last six-seven months will be felt in the second half of the year...Therefore, going ahead, I think the situation will improve”.
On possibility of RBI cutting interest rate to boost growth, he said there is pressure on rupee and lot will depend upon inflation. The WPI based inflation figures will be released next week.
Since the government released the IIP and retail inflation figures at 5.30 pm, the impact of the data could not be gauged in either the stock markets or the forex market.
This is the first time that the Government released the IIP and inflation data after market hours.
The BSE Sensex had surged by 282.41 points to close at 19,958.47, the highest level since May 30. The rupee too appreciated by 11 paise to close at a two-week high of 59.56 against the dollar.
As per the IIP data, the May factory output contractedmainly on account of poor show by the manufacturing and mining sectors. The IIP was 1.9 per cent in previous month and 2.5 per cent in May last year. During April-May the factory output measured in terms of IIP worked out to be a meagre 0.1 per cent, down from 0.6 per cent in the corresponding period last fiscal.
Manufacturing sector, which constitutes over 75 per cent of the index, contracted by 2 per cent in May as against a growth of 2.6 per cent in the year-ago month.
The mining sector output too declined by 5.7 per cent in May, compared to a dip in the production by 0.7 per cent in the year-ago period.
Overall, 11 of the 22 industry groups in manufacturing sector have shown a positive growth in May.
The spike in consumer price index-based inflation came after three consecutive months of decline in the price rise.
The steepest rise was witnessed in vegetables prices which jumped 14.55 per cent in the month over the year-ago period. Prices of fruits too witnessed a significant rise.
Crisil chief economist D K Joshi said IIP number “is disappointing and very clearly indicating recovery is still not in sight...Growth has not bottomed down yet”.
Trade deficit falls to $12.2 bn in June; exports down 4.56%
Sharp compression in gold and silver imports has narrowed the trade deficit to a 7 -month low of $12.24billion in June. In May, trade gap stood at $20.1 billion. Exports contracted by 4.56 per cent for the second consecutive month to $ 23.79 billion while imports declined marginally by 0.37 per cent to $36billion.
Gold and silver imports dipped to$ 2.45 billion in June from $ 8.4 billion in the previous month. However, as compared to June 2012, the imports grew by 22.8 per cent.
“The decline in gold and silver imports can be attributable to the steps taken by government specially by the RBI in May and June by which gold imports for domestic use was discouraged. I think that might have translated into lower imports of gold,” Director General of Foreign Trade (DGFT) Anup Pujari told reporters here.
Pujari said that global demand has still not recovered and there was fall in Chinese and Japanese exports too.
The chairman of trade promotion body EEPC India, Aman Chadha, said that the two largest markets EU and the US are not supporting. “We have to urgently devise a strategy to reach out to newer markets in Africa and latin America.”
Oil imports in the month grew by 13.74 per cent to $12.76 billion, compared to $11.22 billion in June 2012. Non-oil imports declined by 6.7 per cent to $23.2 billion.
Petroleum exports too grew by 4.42 per cent to $4.34 billion from $ 4.15 billion in June 2012.
For the April-June period this fiscal, exports were down by 1.41 per cent at $72.45 billion over the same period last year.
However, imports during the period were up by 5.99 per cent at $122.6 billion. The sectors which witnessed substantial decline of over20 per cent in overseas shipments include iron ore (33 per cent), gems and jewellery (26 per cent) and spices.