The Telegraph
Friday , June 13 , 2014
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Data delight for new govt

New Delhi, June 12: Industrial output expanded 3.4 per cent in April after two months of contraction, while consumer inflation eased to 8.28 per cent in May — data that may provide some relief to Prime Minister Narendra Modi weeks before his government presents its first budget. The index of industrial production (IIP) had grown 1.5 per cent in April 2013.

Industry output rose in April because of a pick-up in manufacturing, electricity and capital goods. Lower food prices helped consumer price inflation (CPI) to ease in May from a three-month high of 8.59 per cent in April.

Production of capital goods rose 15.7 per cent in April in sharp contrast to a contraction of 0.3 per cent in the same month last year.

The mining sector grew 1.2 per cent against a dip of 3.4 per cent in April last year. Manufacturing production increased 2.6 per cent compared with 1.8 per cent a year ago. However, the output of consumer goods declined 5.1 per cent in April against a growth of 1.7 per cent a year ago.

“The higher-than-expected IIP growth in April benefited from a sharp turnaround in the performance of capital goods. With the pace of implementation of investment activity yet to display a broad-based pick-up, it is unclear whether the double-digit growth of the volatile capital goods index will persist in the ongoing quarter,” Aditi Nayar, senior economist with rating agency Icra, said.

The economy has been dragged down by slumping industry. Industrial production shrank 0.1 per cent in the fiscal ended March, keeping overall economic growth below 5 per cent for a second straight year.

The new government is looking to revive the economy by stepping up investment in infrastructure and clearing regulatory hurdles to projects.

Today’s industrial production data came on the heels of a sharp growth in exports in May at 12.4 per cent.

According to data released by the government today, food inflation fell slightly to 9.56 per cent in May against 9.66 per cent in April.

According to Nayar, “Notwithstanding the recent easing in food inflation, stable core inflation and a favourable base effect in the coming months, a cautious monetary policy stance is warranted as monsoon-related concerns have started to crystallise with a delayed onset and low precipitation so far”.

Consumer inflation has been sticky for the past two years at around 10 per cent, making it difficult for the Reserve Bank of India to cut interest rates even as economic growth fell below 5 per cent.

Prime Minister Narendra Modi has promised to break the spell of weak growth and high inflation. However, if fears of El Nino come true, the country may be staring at drought followed by higher inflation that would necessitate tough monetary policy decisions.