IIP shrinks 0.6% in Dec, retail inflation eases to two-year low
New Delhi: Showing no sign of economic recovery, industrial output remained in the negative territory for the third month in a row by contracting by 0.6 percent in December, even as retail inflation eased to two-year low of 8.79 percent in January on account of fall in food prices.
Worried over continued decline in Index of Industrial Production (IIP), mainly due to a fall in manufacturing, India Inc stepped up its demand for a rate cut by the Reserve Bank to boost growth.
The decline in factory output, which began in October with IIP shrinking by 1.6 percent, continued the same trend in November with a 1.3 percent contraction, followed by 0.6 percent in December
In December 2012, IIP had contracted by the same margin of 0.6 percent.
As regards retail inflation, the Consumer Price Index (CPI) data revealed that it fell for the second consecutive month and eased to 24-month low of 8.79 percent in January mainly on account of a a drop in food prices.
It was 9.87 percent in December, down from 11.16 percent a month ago.
Expressing disappointment over the IIP data, industry chamber CII made a case for "an accommodative monetary policy to spur demand and revive investment activity, especially as inflation has started receding".
According to the data released by the government, contraction in IIP during November 2013 has been revised to 1.3 percent, from the provisional estimate of 2.1 percent dip.
"IIP continues to show low growth for the past 7-8 months, mainly because of slump in manufacturing. At this point of time, there is a need to boost fresh investments to bring back factory output to the positive terrain," TCA Anant, Chief Statistician of India said.
Decline in industrial production is a matter of concern and it highlights weak demand for big ticket items and sustained downturn in investment activity, said Aditi Nayar, Senior Economist, ICRA.
"Anaemic manufacturing activity in this fiscal remains a clear headwind to GDP growth," she added.
Pulled down by the manufacturing sector, industrial output for the April-December period of the current fiscal contracted by 0.1 percent against a growth of 0.7 percent in the same period of 2012-13.
The manufacturing sector, which constitutes over 75 percent of the index, declined by 1.6 percent in December last year against a contraction of 0.8 percent in the year-ago period.
The consumer goods output declined by 5.3 percent in December, compared to a contraction of 3.6 percent in the same month in 2012.
The consumer durables segment contracted by 16.2 percent in the month against a decline of 8.1 percent in the comparable period of 2012.
Eight out of 22 industry groups in the manufacturing sector showed a negative growth in December.
In April-December period, manufacturing contracted 0.6 percent compared to a growth of 0.6 percent in same period of 2012.
Manufacturing sector?s weak performance this year is driven by a sharp slowdown in industries that are mostly dependent on domestic demand such as food & beverages, radio, TV & communication apparatus, motor vehicles & trailers, furniture manufacturing, and office machinery, says a Crisil Research note.
CII Director General Chandrajit Banjerjee said: "The negative growth of the capital goods and the consumer durables sector reinforces the view that the escalating interest costs are adversely impacting investment decisions in the respective sectors."
The consumer price index data showed that vegetable prices on annual basis rose 21.91 percent in January, a slower pace than 38.76 percent recorded in the previous month.
Fruit prices rose 15.6 percent in January compared to 14.64 percent in December.
Pulses were dearer by 2.59 percent, cereals by 11.42 percent and milk products by 9.82 percent in the month under review.
Protein-rich items such as eggs, meat and fish became dearer by 11.69 percent in January. The rate of inflation in this segment was slightly higher at 12.64 percent in December.
Retail inflation was in double digits in October (10.17 percent and November (11.6 percent).
The data showed that the provisional inflation for rural and urban areas for January was 9.43 percent and 8.09 percent, respectively.
Data on inflation based on the wholesale price index is scheduled for release on Friday.
PHDCCI President Sharad Jaipuria said: "The decline in CPI inflation from 9.87 percent in December, 2013 to 8.79 percent in January, 2014 is inspiring in anticipation that RBI should soften its monetary policy stance, going forward."
The Reserve Bank factors both retail and wholesale price based inflation data in its monetary policy. It is scheduled to announce the next policy on April 1.
Recently, a RBI appointed committee has suggested the central bank should focus on CPI inflation and aim to bring it down to 8 percent by January next year, and to 6 percent by January 2016.