IIP growth slows to 1.7%, retail inflation rises to 2.57%

Industrial activity slowed in January 2019 growing by just 1.7% due in large part to a deceleration in the manufacturing, electricity, and capital goods sectors, official data released on Tuesday showed. In a separate release, government data showed that retail inflation in February snapped a four-month declining trend by rising to 2.57%.

The Index of Industrial Production (IIP) saw growth slip below the 2% for the second time in three months in January, with the previous occurrence being the 0.32% growth seen in November 2018. Growth in the IIP was at 2.6 in December.

Within the IIP, the mining and quarrying sector was one of the only major sectors that saw growth accelerating, from a contraction of 0.39% in December to a growth of 3.9% in January.

“The slowdown in the IIP only confirms the national income data which also indicated a continuing slowdown,” D.K. Srivastava, chief policy advisor, EY India, said.

“The sectors where the slowdown is happening are manufacturing and industry. Apart from services, all the sectors seem to be slowing.”

The manufacturing sector saw growth slowing to 1.3% in January from 2.65% in December. The electricity sector saw growth slowing to 0.8% from 4.45% over the same period. The capital goods sector contracted 3.2% in January, down from a growth of 5.9% in the previous month.

The construction sector witnessed the strongest growth of all the major sectors, of 7.9%, but this was still significantly slower than the 10% seen in December.

The consumer sector also saw growth slowing, with growth in the consumer durables sector slowing to 1.8% and in the consumer non-durables sector to 3.8% in January, from 2.93% and 5.35%, respectively, in the previous month.

“By March, government spending usually expands, but this time the signs of that are not very prominent because they are trying to cut down on capital expenditure to meet the revised fiscal deficit target,” Mr. Srivastava added, saying an expansion in government spending would have meant a recovery in IIP growth in coming months.

Declining inflation

Retail inflation, as measured by the Consumer Price Index (CPI), rose for the first time in five months in February to 2.57% from 1.97% in January, mainly due to firming food prices, official data showed. Inflation in food and beverages sector stood at -0.07% in February compared with -1.29% in January. “The upward movement was driven primarily by a sequential rise seen in various food groups, except in vegetables,” B. Prasanna, head, global markets group, ICICI Bank said.

“Core inflation moved down slightly as expected, reflecting easing of input costs, pricing powers and growing slack in the economy. The earlier spikes seen in rural health and education seem to have stabilised.”

The housing sector saw inflation slowing marginally to 5.1% from 5.2% over the same period. The fuel and light sector saw inflation slowing to 1.24% in February from 2.12% in January.

“With inflation remaining below RBI’s target, inflationary expectations declining and growth profile weakening, RBI may front-load its monetary easing in the beginning of FY20,” said Devendra Kumar Pant, chief economist and senior director, India Ratings and Research. “However, with capacity utilisation still being low at 74.8% (2QFY18) and pending elections in April-May 2019, it is unlikely to spur investment demand in the economy.”

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Printable version | Sep 24, 2020 5:10:24 AM |

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