)
After contracting 4.2 per cent in October, industrial production increased at a five-month high of 3.8 per cent in November, even as consumer durables continued to be hit by low demand, showed data released by the Ministry of Statistics and Programme Implementation on Monday.
The Index of Industrial Production (IIP), which had contracted 1.3 per cent in November 2013, rose 2.2 per cent in the first eight months of this financial year, against only 0.1 per cent in the corresponding period of 2013-14.
Another set of data showed Consumer Price Index (CPI)-based inflation rose to five per cent in December from 4.38 per cent in the previous month, primarily due to a rise in food prices.
Experts say because inflation is low and the IIP yet to see a sustained recovery, the Reserve Bank of India (RBI) might cut the policy rate next month. “We are expecting a 25-basis-point cut in the repo rate on February 3, on the back of softening of inflation. RBI’s stance might continue to be dovish. For 2015, we are expecting a 50-basis-point cut in the repo rate,” said A Prasanna, chief economist, ICICI Securities Primary Dealership.
Though all the broad segments of industry — mining, manufacturing and electricity — rose in November, output in the consumer durables segment fell.
In December, inflation for food items stood at 4.78 per cent, against 3.14 per cent in November. In December 2013, food inflation stood at 12.49 per cent. At 3.41 per cent, fuel and light inflation was marginally higher than 3.3 per cent in November.
“We had expected December inflation at 5.51 per cent. What has deviated from our expectations is the sharper fall in food prices. We believe inflation in January could be a tad lower than six per cent … The stage is quite set for a rate cut on February 3, a 25-basis point cut,” said Shubhada Rao, senior president and chief economist, YES Bank. She added a larger dose of rate cuts could be announced after the Budget, depending upon Budget announcements. “In 2015, we are expecting a 75-basis point cut in the repo rate,” she said.
Rupa Rege Nitsure, chief economist and general manager, Bank of Baroda, however, said, “RBI will surely wait for the Budget to ascertain the future trajectory of government finances and its implications on inflation and macro stability.”
At RBI's fifth bi-monthly monetary policy review last month, Governor Raghuram Rajan had said a change in the central bank's policy stance was likely in early 2015, provided the improvement on the inflation and fiscal fronts continued.
The manufacturing segment registered growth of 3.4 per cent in November, after contracting 7.4 per cent in October, while the mining sector expanded 3.4 per cent, against 4.9 per cent in October. Electricity generation increased 10 per cent, compared with 13.3 per cent in October.
In November, 16 of the 22 groups in the manufacturing segment saw growth, against as many categories recording contraction in October.
Icra senior economist Aditi Nayar, however, believes growth in industrial activity is likely to dampen in December. "A dip in growth in coal production and electricity generation, reported by Coal India and the Central Electricity Authority, respectively, for December, compared to the double-digit annual growth in November, is expected to dampen IIP expansion for December," she said.
After contracting 35.15 per cent in October, output in the consumer durables segment declined 14.5 per cent in November, showing high interest rates had led to customers deciding against buying these products. In November 2013, this segment had contracted 21.7 per cent.
The fall in November last year was despite the fact that car sales increased 9.5 per cent to 156,000 units during the month, on an annual basis. Production of three-wheelers rose 42.5 per cent during the month, according to a statement accompanying the IIP data.
Production of air conditioners rose 53.8 per cent year-on-year in November, the data showed.
Recent data show the rise in wages in rural areas was slower than the prevailing inflation, implying negative real growth. Given demand in rural areas has propped the economy of late, this could be a worrying sign.
Production of fast-moving consumer goods increased six per cent in November, against a fall of 3.3 per cent in October and a rise of 2.2 per cent in November 2013.
The capital goods segment expanded 6.5 per cent in November, against a decline of 3.2 per cent in October and an increase of 0.1 per cent in November 2013. Basic goods production increased seven per cent in November, against 2.7 per cent in the year-ago period, while the intermediate goods category recorded growth of 4.3 per cent, against 3.7 per cent in November 2013.
