India Inc. downcast with inflation, industrial data

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SME Times News Bureau | 14 Dec, 2017
India Inc. on Tuesday expressed concern over a sharp rise in India's annual retail inflation in November, even as factory output growth in October contracted.

According to industry body Assocham, manufacturing activity slowed in October as inflows of new orders stagnated, even as the negative effects of the Goods and Services Tax (GST) continued to dampen demand levels.

"We at Assocham expect that domestic conditions for growth will improve gradually, mainly driven by consumption demand, which is expected to strengthen with implementation of the Seventh Pay Commission and government stimulus package to revive the economy," said D.S. Rawat, Secretary General, Assocham.

As per the "Quick Estimates" of Index of Industrial Production (IIP) data released by the Central Statistics Office (CSO), the slowdown in the manufacturing sector almost halved the rise in India's factory output in October to 2.2 per cent from 4.14 per cent in September and 4.2 per cent during the corresponding month last year.

On a year-on-year basis, the manufacturing sector, which has the maximum weightage in the overall index, expanded by just 2.5 per cent, whereas mining output was a mere 0.2 per cent and the sub-index of electricity generation by 3.2 per cent.

Meanwhile, macro-economic data on Tuesday also showed that a sharp spurt in food and fuel prices pushed India's annual retail inflation in November over the RBI's median level of 4 per cent.

According to the data from the Ministry of Statistics & Programme Implementation, consumer price index (CPI) inflation in November rose to 4.88 per cent from 3.58 per cent reported for October.

The rate of retail food inflation during November stood at 4.41 per cent on a year-on-year basis, as compared 1.90 per cent the previous month owing to a rise in the prices of items like vegetables, milk-based products, cereals, meat and fish.

Ratings agency Crisil said that it maintains its average inflation forecast for fiscal 2018 at 4 per cent.

"Accordingly, we also expect the Monetary Policy Committee (MPC) to keep policy rates on hold for the remainder of this fiscal. That said, there could be room for a rate cut only if the downside risks to growth materialise, and inflation undershoots the MPC's estimates," Crisil said in a statement.

"The (IIP) moderation is not a good sign as it may suggest that the healthier growth of the previous two months may largely be on account of restocking activity. The subdued industrial performance in October is also attributable to poor performance in exports."

Angel Broking pointed out that the inflation level is sharply higher than the RBI prescribed comfort level of 4 per cent as a long-term average.

"The RBI had already warned about the sharp increase in inflation in its monetary policy in the aftermath of the higher HRA payable to government employees," said Jaikishan J. Parmar, Research Analyst at Angel Broking.

"The real surge in inflation came in rural inflation which sharply moved up from 3.36 per cent to 4.79 per cent. This is likely to force the MPC to put off rate cuts for the time being."