New Delhi: Weighed by a decline in the manufacturing sector, India’s factory output contracted in December while retail inflation accelerated for the sixth consecutive month in January, raising doubts on the recovery process of the fledgling Indian economy.
Data released by the National Statistical Organisation on Wednesday showed the index of industrial production shrank 0.3% in December from the provisional growth of 1.8% a month ago while retail inflation rose to 7.59% in January as against 7.35% in the previous month. Higher prices of food items such as vegetables, eggs, meat and fish, along with fuel costs led to the spike in retail inflation.
Manufacturing sector output declined by 1.2% compared to growth of 2.9% in the same month a year ago.
Electricity generation also dipped 0.1% as against a growth of 4.5%in December 2018.
Mining sector output grew by 5.4%, compared to a contraction of 1%earlier.
The IIP growth during April-December period of the current fiscal decelerated to 0.5% from 4.7% expansion in the same period of 2018-19.
The food inflation last month was 13.63%, compared with (-)2.24% in January 2019. However, it is down from 14.19% in December.
On Tuesday, Finance Minister Nirmala Sitharaman claimed the economy is on the mend, relying on seven indicators, including the IIP, to show that green shoots have started to emerge in the economy. India’s economic growth is estimated by the National Statistical Office to hit an 11-year low of 5% in 2019-20 on the back of sluggish consumption and investment demand. The International Monetary Fund has projected growth to recover to 5.8% in 2020-21.
The Monetary Policy Committee of the Reserve Bank of India on Thursday left policy rates unchanged for the second time, citing evolving growth-inflation dynamics. RBI has cut policy rates by 135 basis points so far in 2019.
The MPC has sharply raised consumer price inflation projection to 6.5% for the fourth quarter of fiscal year 2020 from 5.1-4.7% earlier. The committee pegged CPI inflation for the first half of FY21 at 5.4-5.0% compared with 4-3.8% earlier. The MPC has projected GDP growth for fiscal 2021 at 6%– in the range of 5.5-6.0% in H1 and 6.2% in third quarter. This is line with the GDP growth projection of the economic survey which pegged the growth at 6-6.5%.
However, to improve credit flow, RBI temporarily removed the cash reserve ratio (CRR)—which requires banks to set aside 4% of their deposits—for every new retail loan made to finance automobiles, homes, and to small businesses. This move, while making it attractive for banks to lend to retail and small businesses, essentially translates into a short-term cut in cash reserve ratio. This scheme will be available for new loans given till 31 July.
With inputs from PTI