Separate releases of economic data on Tuesday came as twin shocks to the economy. First, the retail inflation shot up sharply—from 3.58 percent in October to 4.88 percent in November—vindicating the stance of the Monetary Policy Committee (MPC) which decided to hold key rates in the last monetary policy review. Also, this reaffirms the belief that rate cut window will remain shut for most part of the year in 2018.
The RBI expects inflation in the range of 4.3 percent to 4.7 percent in the second half of the fiscal year. Most economists expect the print to stay on the upper band given the pressure on the upward pressure on the vegetable prices. In the month ahead too, it may come high, according to a note by economists at rating agency, Care.
“Food items have grown by 4.4 percent due to higher vegetable prices - which will be pressurized going ahead due to the cyclonic play-out in December. The inflation numbers will remain elevated in December too and could ease from January onwards,” the agency said.
The food inflation in the Consumer Price Index (CPI) jumped to 4.4 percent from 1.9 percent in the month before. Vegetable prices too shot up (7.54 percent to 22.48 percent) month-on-month while, according to Care, “the first aggressive stance of the HRA impact of Pay Commission was seen this time with the component revealing growth of 7.4 per cent.” Overall, the November inflation picture only adds to the caution of policymakers.
Second, the factory output slowed significantly month-on-month in October to 2.2 per cent from 4.1 percent in September. That’s the second consecutive month of contraction. If one takes an average of the April-October, 2017 period, the Index of Industrial Production (IIP) stands just at 2.5 percent as compared with 5.5 percent in the corresponding period in previous year. This shows the slowdown in industrial production is beginning to show a pattern and is worrying. Most of the segments have shown a decline in growth. To pick a few, mining, manufacturing, consumer goods—all give us an impression that activity is yet to pick up on ground.
With regard to infrastructure, construction has stood out showing a growth of 5.2 percent compared with 0.4 percent in the previous month. The depressing set of economic data comes in the backdrop of September quarter GDP growth showing an uptick to 6.3 percent compared with 5.7 percent in the June quarter and various agencies are contrasting on projections ahead.
Global rating agency Fitch Ratings, early his month, cut the GDP growth forecast for the current fiscal to 6.7 percent from the earlier projected 6.9 per cent, saying the rebound was weaker than expected. This was after Moody’s Investors service upped India’s sovereign rating a notch but Standard and Poor’s another rater, retained the grade. On Monday, the UN said the growth rate of India's economy is projected to accelerate from this year's 6.7 percent to 7.2 percent next year and 7.4 percent in 2019 making it again the world's fastest growing major economy. In short, there is no clarity on the growth picture.
But, for now, both the inflation and IIP figures should remind the Narendra Modi-government of its immediate challenges to kickstart the economic momentum attracting investments and repair the damage caused by demonetisation and poorly planned GST roll out. The fact that even after GST, restocking the growth pick-up is not happening in a visible way is an immediate concern. With inflation at a high, the government cannot expect any further monetary stimulus from the MPC. The Modi-government has its task cut out.
(Data support from Kishor Kadam)
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Updated Date: Dec 13, 2017 07:56:59 IST