IIP contracts for 3rd mth in row; Dec growth at (-)0.6%

The fall is mainly due to 16.2% contraction in consumer durable goods and 3% in capital goods, refecting the low investment and consumption demand in the economy

IIP contracts for 3rd mth in row; Dec growth at (-)0.6%

NEW DELHI : India’s industrial output contracted for the third month in a row in December as investment and consumption demand in the economy continued to plunge. The Index of Industrial Production declined 0.6% in December compared with a contraction of 1.3% in November, and 0.6% a year ago, the Central Statistics Office said on Wednesday.

The decline in industrial output is mostly in line with consensus estimate. According to a Cogencis poll of 18 economists, industrial production in December was seen contracting 1.0%.

The decline is primarily on account of 16.2% contraction in consumer durable goods and 3.0% in capital goods.

The poor performance of the two segments reflects the low investment and consumption demand in the economy. Out of the last 12 months, consumer durable goods have declined in all the months, while capital goods have declined in eight.

Despite a growth of 1.6% in consumer non-durables segment in December, the fall in durables pulled down overall consumer goods growth. Consumer goods growth contracted 5.3% during the month, declining in seven of the first nine months of this year.

Commenting on the data, Soumya Kanti Ghosh, Chief Economic Adviser, State Bank of India, said, “the fall in CPI is as per expectations. CPI inflation is likely to ease further to around 8.5% in February. In March, it could be at the lower end of 8.0-8.5%. We hope that the Reserve Bank of India stands pat on rates in the upcoming policy.”

The manufacturing sector, which accounts for nearly three-fourths of the total weight of the Index of Industrial Production, also declined 1.6%. With this, the manufacturing sector growth has contracted in six out of nine months.

Sectors that performed well were mining and electricity. The mining sector posted a positive growth for the second straight month at 0.4% in December, while intermediate goods jumped to a 14-month high of 4.5%. Growth in the electricity sector rose to a three-month high of 7.5% in December. Industrial production had expanded 1.1% in 2012-13, the slowest pace in 21 years.

With industrial output continuing to show a dismal performance and risks to inflation easing, the Reserve Bank of India is likely to focus on improving growth.

Shubhada Rao, chief economist, YES Bank, said, “CPI (Combined) inflation rate declined as anticipated. Food prices eased in line with expectations, but core inflation remained sticky. According to our estimate, CPI core inflation rose to 8.11% this month (from 8.05% a month

ago). Going forward, the headline CPI number is likely to remain at these levels or may decline. We expect a limited probability of rate hike by the Reserve Bank of India on Apr 1, unless there is a steep negative surprise on core CPI inflation.”

In its third quarter monetary policy review last month, the Reserve Bank of India had hiked the repo rate by 25 basis points. The finance ministry has revised its gross domestic product growth projection for the current year at 5.0%, compared with 5.0-5.5% earlier. India’s growth was recorded at 4.8% in Jul-Sep. -Cogencis

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