Factory output growth slowed down to 1.7 per cent in May due to poor perfomance of manfuacturing even as retail inflation dipped to historically low level of 1.54 per cent, raising clamour for interest rate cut by the RBI next month.
The growth rate of industrial output, measured by the Index of Industrial Production (IIP), slumped to 1.7 per cent in May from 8 per cent expansion in the same month last year, the official data released today showed.
The Consumer Price Index-based inflation hit a historically low level of 1.54 per cent in June on fall in prices of food items like vegetables, pulses and milk products, as per the data released by the Central Statistics Office.
The Reserve Bank of India (RBI) has kept its key policy rates on hold citing risks to inflation.
The IIP data showed that the output of capital goods shrunk by 3.9 per cent in May compared to a high growth of 13.9 per cent recorded in May 2016. The consumer durables segment too witnessed a decline.
While mining sector output declined by 0.9 per cent in May against 5.7 per cent growth in the year-ago month, the growth of manufacturing sector slowed down to 1.2 per cent from 8.6 per cent in the same month last year.
The government has been pressing on the RBI for a cut in interest rates to increase private investment. Industry too has been persistently demanding rate cut to boost investments.
On inflation data, Chief Economic Adviser Arvind Subramanian said 1.54 per cent is "historically" low and reflects the firm and ongoing consolidation of macro economic stability.
"The last time we saw such inflation -- according to slightly different CPI (IW) -- was in 1999 and before that in August 1978," he added.
The low inflation number as well as the latest IIP data, he said "is something that I am sure all policy makers will reflect upon very very carefully".
The six-member Monetary Policy Committee of the RBI is slated to meet early next month to decide on interest rates.
"In view of the fall in consumer durable growth, reducing interest rates would help in stimulating demand and also reviving investments," industry chamber Ficci said.
Industry body Assocham said the RBI's stance to maintain the status quo has hit the expectations of the industry though there was a room for rate cut.
Inflation in overall food basket declined further to (-)2.12 per cent in June against (-)1.05 per cent in May.
Vegetables prices declined by 16.53 and that of pulses and products by 21.92 per cent in June compare to the year ago period. Price of eggs dropped 0.08 per cent.
On the other hand, protein items meat and fish turned costlier as inflation spiked to 3.49 per cent in June from 1.87 per cent in May. Fruits too were dearer on monthly basis.
Principal Economist with ICRA Aditi Nayar said IIP slipped for the second month in a row, reflecting an unfavourable base effect and pre-GST inventory curtailment.
On inflation, Chief Economist of India Ratings & Research Devendra Kumar Pant said vegetables deflation in the month of July is expected to reduce due to cyclical monsoon related impact.
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