As the country's economy is heading for revival with many challenges ahead, the industrial output and retail inflation numbers are disappointing the growth momentum month after month. Poor performance of manufacturing sector and a sharp decline in capital goods output resulted in industrial production by contracting by 3.2 per cent in November -- the lowest level in over four years, while the annual retail inflation also crept up to 5.61 per cent in December to add another blow for the nation.
The Index of Industrial Production (IPP) measuring factory output grew at 5.2 per cent in November, 2014, as per the data released by the Central Statistics Office (CSO) on Tuesday. This is the worst performance since October 2011 when IIP had contracted by 4.7 per cent. While the industrial production growth in October was slightly revised upwards to 9.9 per cent from provisional estimates of 9.8 per cent released last month.
The manufacturing sector, which constitutes over 75 per cent of the index, contracted by 4.4 per cent as against the growth of 4.7 per cent in the same month last year. Seventeen out of 22 industry groups in the manufacturing segment showed negative growth during November 2015 compared to the corresponding month of the previous year.
Similarly, capital goods output which is a barometer of investment contracted by 24.4 per cent in November 2015 compared to a growth of 7 per cent in same month of previous year. The electricity sector, which constitutes about 10 per cent of the index, also showed dismal performance as it grew by meagre 0.7 per cent in November 2015 compared to 10 per cent growth in same month a year ago.
Keeping such untoward movement of both IIP and inflation, the Reserve Bank of India (RBI) is expected to hold policy rates in its monetary policy review on February 2 ahead of the Budget. However, experts believe that though the central bank is keenly watching the fiscal road map adopted by the Government, the growth in industrial output and rising retail price are causing huddles for the economy. Since January last year, the RBI has cut key policy rates by 125 basis points and the central bank is targeting retail inflation under 6 per cent in January 2016 and 5 per cent by March 2017.
As far retail inflation is concerned, consumer price index (CPI) data has been consecutively hardening for the past four months and December will be the fifth month. It has risen from levels of around 3.7 per cent in July of 2015. One of the key reasons for the hardening in the CPI is because of the food inflation. Rising for the fifth straight month, retail inflation or CPI quickened to 5.61 per cent in December, mainly on costlier vegetables and cereals, limiting the headroom for the RBI to lower rate next month.
Food inflation too rose to 6.40 per cent during the month, The Government data released on Tuesday showed. Retail inflation measured by the consumer price index (CPI) was at 5.41 per cent in November 2015 and 4.28 per cent in December 2014. Retail prices of cereals and products moved up by 2.12 per cent in December, from 1.7 per cent in November.
The growth in prices in meat and fish stood out at 6.57 per cent as against 5.34 per cent in November while that of eggs was at 0.97 per cent, from 0.5 per cent in the previous month.
Also, retail inflation in the oil and fats category moved up to 7.06 per cent while that of fuel and light, it was 5.45 per cent. "We are not surprised as this is very sticky consumer inflation, but is well within the RBI target of 6 per cent. Once the base effect comes into play, I see a downward trend in CPI and a very strong case for interest rates coming down," Yes Bank CEO and MD Rana Kapoor told reporters here.