New Delhi, March 12: Industry bounced back in January after two months of contraction, a sign that the worst may be over for the economy on account of better performances in manufacturing and power.
However, unimpressed by fragile indications of a recovery, the finance ministry and corporate India sought to impress upon the Reserve Bank of India (RBI) the need to lower interest rates next week to boost industrial growth.
The index of industrial production (IIP) grew 2.4 per cent in January from a year earlier, government data showed. It had contracted 0.8 per cent in November and 0.5 per cent in December 2012.
However, the data highlighted pockets of weakness and underscored the challenges facing the economy as it struggled to motor on from a sharp slowdown. While the production of consumer goods recovered, posting an annual growth of 2.8 per cent in January, capital goods’ output — a key investment indicator — fell 1.8 per cent. The sector has grown just once in the last 10 months.
“Inflation numbers have come down so there is certainly a case for (giving) further impulses to growth,” department of economic affairs (DEA) secretary Arvind Mayaram told reporters.
The country’s headline inflation, measured by the wholesale price index (WPI), has remained above 7 per cent for the last three years before slowing down to 6.6 per cent in January, edging closer to the RBI’s perceived comfort level of around 5 per cent.
The RBI has forecast the March-end WPI inflation to be 6.8 per cent.
Worried about a deepening economic slump and encouraged by a slowdown in the headline inflation, the Reserve Bank cut interest rates in January for the first time in nine months.
However, it had warned that room for further monetary easing was limited unless inflation and a high current account deficit improved by more than expected.
Mayaram said the central bank would take into account various developments and macro economic conditions before taking a view on interest rate at its mid-quarter review of the monetary policy on March 19.
“The numbers fit in with the signals we have been getting ... have to see how fast the turnaround happens,” said Planning Commission deputy chairman Montek Singh Ahluwalia.
Rupa Rege Nitsure, chief economist at Bank of Baroda, said the January data showed improved manufacturing activity, especially in electrical machinery production, chemical products and consumer non-durables.
“However, it’s too early to comment on the sustainability of this trend. I still expect the RBI to cut policy rates by 25 basis points.”
Expectations for any aggressive monetary easing have been tempered by retail-level data that showed a pick-up in consumer inflation. Consumer price inflation inched up to 10.91 per cent in February from 10.79 per cent a month ago, data showed.