Indian economy still in danger zone as IIP fall, inflation rise

New Delhi: Indian economy is still not out of the woods as industrial production slackened to a four-month low of 3.6 percent while retail inflation inched up to 5 percent.

According to data released Thursday by the Central Statistics Office (CSO), the 3.6 percent industrial production growth for September is lowest since 2.5 percent rise in May this year.

While the growth rate for the latest month is higher than 2.6 percent rate recorded in September 2014, it has fallen sharply from 6.2 percent in August 2015 mainly because of subdued performance of the manufacturing sector.

"Two key macro indicators clearly point out that the economy still faces several tough challenges," Assocham Secretary General D S Rawat said, adding that an effective strategy to deal with the situation is required so that the headline number does not convey an impression of inflation returning.

This will be the last set of macro data this year RBI will consider before it heads into its policy review due in December.

Retail inflation measured in terms of the consumer price index surged due to costlier pulses and other food items. Prices in the pulses and products category rose to a staggering 42.20 percent in October.

While the price rise in the food and beverage category came in at 5.34 percent in October, inflation in cereals and products was also higher at 1.46 percent, CPI data released by CSO showed today.

"With aggressive measures in place to control the price increase, CII is confident of a moderation (in retail inflation), going forward. This should be supportive of general economic recovery in the second half of the year," CII DG Chandrajit Banerjee said.

Industrial output growth, measured in terms of the index of industrial production (IIP), had grown by 2.6 percent in September last year.

Meanwhile, the factory output was revised slightly downwards to 6.2 percent for August, from the provisional estimate of 6.4 percent earlier.

IIP stood at 4 percent in April-September 2015 against 2.9 percent in the year-ago period.

India Ratings & Research Chief Economist D K Pant said September IIP at 3.6 percent is much lower than expectations.

"While consumer durable and capital goods production increased, slower growth of manufacturing sector pulled down IIP growth," Pant added.

The manufacturing sector, which constitutes over 75 percent of the index, grew 2.6 percent in September 2015, against 2.7 percent expansion in the same month last year.

Industry-wise, 11 out of 22 groups in the manufacturing sector showed positive growth in September.

The output of consumer non-durable goods contracted 4.6 percent in the month under review against a growth of 1.3 percent in September 2014.

The mining sector growth came in at 3 percent in September 2015 against 0.1 percent in the same month last fiscal.

Capital goods output, a proxy for investment, grew at 10.5 percent as against 12.3 percent a year earlier while power generation grew an annual 11.4 percent in September.