Industrial production activity rose at almost a one-year high in October led by strong growth in the manufacturing and mining sectors even as retail inflation for November slowed to a 17-month low on cooling food prices, according to official data released on Wednesday.
Growth in the Index of Industrial Production ((IIP) came in at 8.08% in October, up from 4.47% in the previous month, and 1.83% in October of last year. This was primarily led by the 7.04% growth in the mining sector and the 7.92% growth in the manufacturing sector, both of which grew 0.11% and 4.62% in the previous month, respectively.
“Industrial production displayed a stellar performance in October, coming in at a multi-month high with most sectors showing a markedly better performance, albeit aided somewhat by a favourable base,” said B. Prasanna, head, global markets group at ICICI Bank. “This is welcome after manufacturing growth slowed notably in Q2 FY2019.”
“Electricity volume growth has re-entered double-digit territory after a gap of over two years and the consumer goods segment also gained from the favourable base, with both durables and non-durables on a healthy uptrend,” Mr. Prasanna further noted.
Growth in the electricity sector touched 10.8% in October, up from the 8.24% in September. The last time growth in the sector hit double-digits was in April 2016. Growth in the consumer goods segment also hit double-digits, coming in at 12.1% in October from 5.68% in the previous month. Within this, growth in the consumer durables segment zoomed to 17.56%, up from 5.16% in September.
Growth in the capital goods sector was at 16.8% in October, up from 6.51% in September.
“The boost in IIP is from infrastructure which is primarily government-led spending,” said Ranen Banerjee, leader, public finance and economics, PwC India.
“We hope private sector investments will pick up soon, else the burden on the government and the risk of fiscal slippages will be higher,” he added.
Moderating inflation
Growth in the Consumer Price Index (CPI), the measure of retail inflation, slowed sharply to 2.33% in November from 3.38% in the previous month. It was 4.88% in November of last year.
“Macro data got a boost from a very benign CPI print aided by low food prices characterised by continued deflation in pulses and vegetables,” Mr. Prasanna said. “There is also substantial moderation in core inflation sequentially. We expect CPI to remain below 4% till Q1 FY2020.
“We also expect a change in monetary policy stance to “neutral” from “calibrated tightening” in the February policy and expectations of a rate cut will now start building,” added Mr. Prasanna.
Inflation in the food category remained in the negative territory, contracting 1.69% in November compared with a contraction of 0.14% in the previous month. The housing sector also saw a significant easing of inflation, to 5.99% from 6.55% over the same period. The fuel and light segment also witnessed slowing inflation to 7.39% from 8.55%.
“The inflation print will lead to calls for aggressive monetary policy and reversal in stance by the Reserve Bank of India on the interest rates,” Mr. Banerjee said. “Falling food prices will put pressure on farmers’ income, leading to pressure for more farm loan waivers.”