Factory output in Nov brings cheer, inflation a dampener

Tribune News Service

New Delhi, January 12

A robust performance by the manufacturing sector took the industrial production growth to 17-month high of 8.4% in November, but retail inflation at 17-month high of 5.2% in December dampened the euphoria.

The continuous rise in consumer inflation may prompt the Reserve Bank, which is aiming to keep it within 4%, to hold the interest rate at its next month’s policy review meet, which will be held within days of the presentation of the Union Budget on February 1.

Industrial production growth jumped sharply due to favourable base effect and inventory rebuilding though there are doubts on its sustainability.

The factory output, measured in terms of Index of Industrial Production (IIP), grew 5.1% in November 2016, as per data released today by the Central Statistics Office (CSO).

The previous high was recorded at 8.9% in June 2016. Meanwhile, the IIP growth for October 2017 has been revised downwards to 2% from the provisional estimates of 2.2% released last month.

Analysts said there are concerns over the sustainability of the trend. Aditi Nayar, Principal Economist, ICRA, said the extent of the uptick in IIP growth in November was far sharper than expectations, reflecting a favourable base effect as well as inventory rebuilding after the festive season, raising some concerns regarding its sustainability beyond third quarter of financial year 2018.

Nayar said the disaggregated data poses a mixed trend with high growth in consumer non- durables, infra/construction goods and capital goods offset by modest expansion in basic goods, intermediate goods and consumer durables. Nevertheless, all six sub-sectors recorded an improving trend on a sequential basis, which is encouraging, she added.