Factory output logs growth after 3 months, inflation falls

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SME Times News Bureau | 13 Apr, 2016
Tuesday could well be a day to raise the toast for the Indian economy. Official data forecast rains during the upcoming monsoon season to be above normal, retail inflation has fallen to a six-month low, and factory output is up after three straight months of decline.

First came the forecast by the Indian Meteorological Department that after two straight years of drought, India is likely to be showered with above-normal rains during the upcoming monsoon season, with a probability of more than 94 percent precipitation.

Then came the twin dose of positive news from the Central Statistics Office that India's factory output for February logged a growth of 2 percent after three straight months of decline, even as annual retail inflation fell to 4.83 percent in March from 5.26 percent in February.

The annual food inflation for the month also showed a decline to 5.21 percent from 5.30 percent. But the manufacturing sector continued to be pressured, barely managing a growth of 0.7 percent in February, as per data released by the Central Statistics Office on Tuesday.

Data on consumer price index also showed that for rural India, the annual inflation fell to 5.7 percent from 6.05 percent, while for the urban dwellers, the price rise in the 12-month period till March was 3.95 percent, as opposed to 4.30 percent for the like previous ended February.

In the case of the Index for Industrial Production, the overall growth was mainly led by a 9.6 percent growth in electricity output, even as mining activity in February -- the latest period for which data is available -- expanded by 5 percent.

The markets appear to have sensed the positive outcomes. The sensitive index (Sensex) of the BSE was rather flat for the bulk of the day. But as soon as the predictions on monsoon came, it shot up to eventually end with a gain of 0.49 percent. On Monday, it had gained 1.41 percent.

Data on industrial production and retail inflation came after the close of trading hours.

India Inc. was naturally elated by the forecast on the upcoming rainy season.

"The prediction would be a great mood changer for industry, as revival of rural demand leads to a turn in investment cycles. This will take the economy to a higher trajectory of around 8 percent growth," said Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII).

He said the prospect of above-normal monsoon will help bolster farm productivity, alleviate rural distress, boost rural incomes and consumption demand, augment food supply and keep the inflation under check.

Indian industry also reiterated its call for further easing interest rates.

Industry chamber Assocham expressed the hope that the budget's commitment towards fiscal consolidation, combined with the Reserve Bank of India reducing the repo rate by 25 basis point earlier this month, would "further help industry in gaining a strong foothold and sustained growth.

"Competitive interest rates are necessary for reviving investor sentiments, which in turn would help put the economy back firmly on growth trajectory. However it is now the responsibility of banks to pass on benefits of rate cuts to the end consumer," it said in a statement.

"While there is an immense potential to grow for manufacturing, but currently with the demand scenario not so optimistic, industry is also cautious on any large scale expansion," said Federation of Indian Chambers of Commerce and Industry president Harshavardhan Neotia in a statement.

Indian Meteorological Department director general Laxman Singh Rathore earlier told reporters that "for the last 31 years years, we have had deficient rainfall. But there are better days ahead".

"The monsoon (rains) is likely to stay between 104 percent to 110 percent of the normal and it is likely to have a fair distribution across all the parts of the country," Rathore said. "There is a possibility of excess monsoon also."

As per the Met's prediction, the chances of a normal rainfall during this monsoon season was 30 percent, 34 percent for above-normal, and 30 percent for excess. On the flip side, chances of below-normal rain were just five percent and for deficient rain, barely one percent.