Industrial output growth dips to 4.3% in July; retail inflation rises to 3.21% in August, yet stays below RBI's comfort level

  • The industrial output growth was recorded at 1.2% in June and 4.6% in May this year

  • The IIP data showed a significant slowdown in the manufacturing sector, which grew at 4.2% in July 2019

  • The rate of price rise in the food basket was 2.99% in August, up from 2.36% in the previous month

The industrial production growth slowed to 4.3 percent in July, dragged mainly by manufacturing sector's poor show, while retail inflation rate rose to 3.21 percent in August due to higher food prices, said government data released on Thursday.

Though the retail inflation rose, it remained under 4 percent, the comfort level of the Reserve Bank of India (RBI), for the straight 13th month.

Factory output, as measured by the Index of Industrial Production (IIP), had expanded 6.5 percent in July 2018.

The industrial output growth was recorded at 1.2 percent in June and 4.6 percent in May this year.

According to data released by the Ministry of Statistics and Programme Implementation, industrial output grew at 3.3 percent in April-July period this fiscal, down from 5.4 percent growth in the same period a year ago.

 Industrial output growth dips to 4.3% in July; retail inflation rises to 3.21% in August, yet stays below RBIs comfort level

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The IIP data showed a significant slowdown in the manufacturing sector, which grew at 4.2 percent in July 2019 as compared to 7 percent a year ago.

Capital goods segment, which is a barometer of investment, saw a contraction of 7.1 percent in July compared to 2.3 percent rise a year ago.

Mining growth was 4.9 percent in July as compared to 3.4 percent in the same month last fiscal.

The expansion in the power generation sector stood at 4.8 percent in July, compared to 6.6 percent a year earlier.

As per use-based classification, the growth rates in July 2019 over July 2018 are 3.5 percent in primary goods, 13.9 percent in intermediate goods and 2.1 percent in infrastructure/construction goods.

Consumer durables and consumer non-durables have recorded growth of (-) 2.7 percent and 8.3 percent, respectively.

In terms of industries, 13 out of 23 industry groups in the manufacturing sector have shown positive growth during July as compared to the same month a year ago.

Retail inflation rises

The etail inflation rate rose to 3.21 percent in August, driven by higher food prices, the government said on Thursday. It remained below the central bank’s 4 percent medium-term target for a thirteenth consecutive month but marked the highest level recorded since October 2018.

The rate of price rise in the food basket was 2.99 per cent in August, up from 2.36 per cent in the previous month, as per the Consumer Price Index (CPI) data released by the government.

The CPI-based inflation was 3.69 percent in August 2018. The RBI, which mainly factors in CPI while arriving at its bi-monthly monetary policy, has been asked by the government to keep inflation at around 4 percent. The last month had lowered its benchmark repo rate for a fourth meeting in a row. It has dropped 110 basis points so far this year to 5.40 percent.

The central projected inflation to remain at 3.4 percent to 3.7 percent during the October-March period.

RBI may cut rates further, say experts

Economists said the RBI could cut rates further to support consumer demand and private investment, as economic growth slowed to a more than six-year low of 5% in the April-June quarter and inflation remains subdued.

Aditi Nayar, principal economist at ICRA, the Indian arm of Moody’s, said the high frequency data for August 2019 revealed a recovery was not under way, despite a pick-up in industrial growth in July 2019.

“We continue to expect another rate cut in the October 2019 MPC (Monetary Policy Committee) review,” she said.

The government has largely relied on the central bank to support the economy, while resisting pressure to provide a stimulus to boost consumer demand and private investments.

India’s monthly passenger vehicle and car sales recorded their steepest fall ever in August, according to data released by an industry body on Monday, prompting many companies to cut jobs.

India’s unemployment rate rose to 8.2 percent in August, highest reading since September 2016, compared with 6.3 percent a year ago and 7.3 percent in the previous month, estimates from the Centre for Monitoring Indian Economy, a Mumbai-based think-tank, showed.

The next decision from the RBI’s monetary policy committee (MPC) is due on 4 October.

Retail food prices, which make up nearly half of India’s inflation basket, increased 2.99 percent in August year-on-year, compared with a revised 2.36 percent in July, while prices of services such as education, health and entertainment climbed between 5.54 percent and 7.84 percent.

With inputs from agencies

Updated Date: Sep 12, 2019 19:22:49 IST