New Delhi : Industrial recovery will continue to remain fragile and the factory output data for December is expected to be lacklustre at 0.8 per cent, India Ratings and Research (Ind-Ra) said on Tuesday. Regarding inflation, it projected retail inflation to come in at 5.6 per cent and wholesale inflation at (-) 0.1 per cent in January. “Industrial recovery in December 2015 is likely to remain lacklustre. Industrial recovery continues to remain fragile. (We) estimate Index of Industrial Production (IIP) growth for December 2015 at 0.8 per cent,” Ind-Ra said in a statement.
IIP in November contracted by 3.2 per cent – steepest decline in over four years – due to poor performance of manufacturing sector and a sharp decline in capital goods output. Retail inflation rose for the fifth month in December to 5.61 per cent, while the wholesale inflation stood at (-)0.73 per cent.
As regards wholesale inflation, Ind-Ra expects it to turn positive by February 2016 mainly on account of rising food inflation and decline in the price of the Indian crude basket to USD 28.35/bbl in January 2016 from USD 35.68/bbl in December 2015. “This makes the average price of the Indian crude basket the lowest since November 2003 in USD and since February 2005 in Rupee term. Although a low level of inflation augurs well both for the economy and corporates, the prolonged phase of deflation in WPI however is hurting the government’s tax revenues and corporates sales growth,” Ind-Ra said. While rising food (mainly pulses) inflation is expected to pull CPI inflation up, continued weakness in oil prices will keep retail inflation in check and within the RBI’s comfort zone.
“The central bank isn’t likely to act on rates aggressively in 2016, as a renewed uptick in food costs-driven inflation will put the RBI’s medium-term inflation target of 5 per cent by end of 2016-17 fiscal at risk,” it added. Data for January retail inflation and December IIP are scheduled to be released on February 12 and January wholesale inflation will be released on February 15.
