Industrial output grew 3.1 per cent, a seven-month low, in September as the impact of low base effect wore off. Industrial output had recorded a growth of 12 per cent in August and 1 per cent in September 2020, according to data released by the National Statistical Office Friday.
Economists said the decline in IIP is a cause of concern and going ahead, steps need to be taken to stimulate consumer spending and demand. “While the sharp deceleration in IIP growth is mainly because of the base effect, even on a sequential basis the IIP declined and this is a cause of concern,” said Rajani Sinha, Chief Economist & National Director – Research, Knight Frank India.
Sinha said though the infrastructure sector has shown a sequential decline, a strong improvement in the month-on-month consumer goods segment, specifically the consumer durables sector, was a silver lining. “Going forward, for sustainable economic momentum in 2022, the critical driver would be boost to consumer spending through demand stimulating government policies. Eventually private investment will also improve as capacity utilization level improves going forward,” she said.
Another release by the NSO showed that retail inflation based on Consumer Price Index (Combined) rose to 4.48 per cent in October from 4.35 per cent a month ago as food prices inched up along with high input costs, fuel and commodity prices, data released by the National Statistical Office on Friday showed. Food inflation picked up to 0.85 per cent in October from 0.68 per cent a month ago with a rise in prices of vegetables.
The inflation print for October this year, however, is lower than the year-ago level of 7.61 per cent recorded in October 2020. With the impact of excise duty cut yet to reflect in the headline numbers, high core inflation — the non-food, non-fuel inflation component — and risks of high global commodity prices are expected to keep inflation rate under pressure.
Most economists said the Reserve Bank of India would maintain its accommodative policy stance for the rest of this fiscal given the trends in inflation and IIP data.
The impact of the recent excise duty cut by the Union government and VAT reduction by more than 20 states on petrol and diesel is expected to start reflecting from the November print of retail inflation, economists said. “While the first-round impact will lead to around 15 basis points reduction in retail inflation, the second-round impact through reduction in freight cost will be felt in coming months… reduction in union and state level duties on petrol and diesel is unlikely to cool off inflation of ‘fuel and light’ and ‘transport and communication’ group significantly,” Sunil Kumar Sinha, Principal Economist, India Ratings said.
While food inflation increased marginally to 0.85 per cent in October from 0.68 per cent last month, it contributed nearly 48 per cent to the monthly increase in headline retail inflation, he said. Inflation rate for oils and fats was recorded at 33.5 per cent, up from 34.2 per cent and for pulses was recorded at 5.42 per cent against 8.8 per cent a month ago. Clothing and footwear inflation was 7.53 per cent in October, up from 7.2 per cent in August.
Fuel and light inflation stood at 14.3 per cent, the highest level in the 2011-12 base year series. Transport and communication inflation jumped to a four-month high of 10.9 per cent in October.
“Despite base effects, still-high fuel costs, input cost pressures and seasonal turn in some food prices in coming months etc. could even see inflation rise towards 6.2%+ later in the fiscal year. We revise our forecast by 25bps to 5.5% (RBI:5.3%) for FY22, as we reckon supply-side bottlenecks, higher imported commodity inflation and high pump prices would pose a countering upside pressure on inflation… RBI’s reaction function on key policy rates is unlikely to change in this year, especially as the pass-through to output prices and core inflation is still getting somewhat tempered, given the output slack,” Madhavi Arora, Lead Economist, Emkay Global Financial Services said.
In the IIP data, output of the manufacturing sector, which accounts for over three-fourth of the total weight of the index, grew 2.7 per cent in September, down from 9.9 per cent in August. Electricity production increased a mere 0.9 per cent compared to last year, likely due to the paucity of coal. Core sector data released last month had shown growth in coal production falling to 8.1 per cent in September from 20.6 per cent in August.
Growth in mining sector output moderated to 8.6.per cent in September from 23.6 per cent in August. Among use-based Industrial classification, capital goods — an indicator of investment — grew 1.3 per cent while both consumer durables output contracted 2 per cent and consumer non-durables output contracted 0.5 per cent.