Industrial growth declines to 20-month low, inflation up

Industrial growth slowed in February to 0.1%, driven by an across-the-board slowdown, especially in key sectors like manufacturing, mining, capital goods, and infrastructure, according to latest official data.

Separate data showed that retail inflation quickened in March to 2.86% from 2.57% in February, driven in large part by the food and fuel sectors.

Growth in the Index of Industrial Production (IIP) slowed in February from 1.44% in January.

Within the Index, the mining and quarrying sector saw growth slowing to 2% from 3.92% over the same period.

The manufacturing sector saw a contraction of 0.31% in February from 1.05% in January.

“The IIP data broadly indicates the slowing down of the economy, which was reflected in the quarterly GDP data,” said D.K. Srivastava, chief policy advisor, EY India.“The outlook should be thought of in terms of stimulating investment demand in the economy through monetary and fiscal measures,” he said.

“On the monetary side, steps have been taken through two successive rate cuts by the Reserve Bank of India,” Mr. Srivastava added. “On the fiscal side, however, the prospects were limited because both direct and indirect tax revenue collections have shown a shortfall compared to the revised estimates. So, in order to meet the 3.4% fiscal deficit target, it appears the government has gone in for curtailing expenditure in general, and capital expenditure in specific.”

Capital goods contract

The capital goods sector continued its contraction in February, contracting 8.84% compared with a contraction of 3.42% in the previous month.

Growth in the infrastructure sector slowed to 2.38% from 6.8%.

The electricity sector was the only sector that saw an acceleration in growth, coming in at 1.18% in February compared with a growth of 0.94% . The consumer non-durables sector also saw growth quickening, to 4.3% from 3.33% over the same period.

CPI inflation

Retail inflation, as measured by the consumer price index (CPI), quickened in March to a five-month high due to a speeding up of inflation in the food and fuel sectors. Inflation in the food and beverages segment of the CPI quickened to 0.66% in March compared with a contraction of 0.07% in February.

“Inflation is still well below the average threshold of 4% and food prices have just turned positive, and vegetable prices are much less negative than the trend,” Mr. Srivastava added.