Industrial production contracted year-on-year in December for the third consecutive month, but inflation rate falls to 24-month low, reports Team IFM
New Delhi, February 13: India’s industrial output shrank year-on-year in December, but a measure of good cheer was ushered in by official data released on Wednesday that showed the country’s annual rate of inflation was way better than expected in January.
A day earlier, another set of official data reflected a healthy show on the current account front; India had halved its trade deficit last month compared to a year-ago period, riding a massive fall in gold imports even as exports inched up.
On Wednesday, the Central Statistical Organsiation (CSO) said that the Index of Industrial Production (IIP), a measure of India’s industrial output had contracted 0.6 per cent in December over a year-ago period, as compared to 2.1 per cent year-on-year contraction in November.
This was for the third month in a row that the IIP growth rate was in the negative zone, dragged back by a listless manufacturing sector.
The Reserve Bank of India (RBI) had said as much in a recent statement. On January 27, the central bank said though economic growth would be marginally higher in the second half of the April 2013-March 2014 financial year than in the first, it would mainly be due to a enhanced performance in agricultural production and higher exports, and not manufacturing.
“A moderate paced recovery is likely to take shape in the next year with support from rural demand, a pick-up in exports and some turnaround in investment demand,” it said.
“The growth in 2014-15 is likely to be in the range of 5 to 6 per cent, with likelihood of it being in higher reaches of this forecast range as project clearances translate into investment, global growth outlook improves, and inflation softens.”
Manufacturing Blues
That manufacturing is still in the doldrums was made clear on Wednesday by the CSO, a unit of the Ministry of Statistics and Programme Implementation. “The General Index for the month of December 2013 stands at 178.3, which is 0.6 per cent lower as compared to the level in the month of December 2012,” it said in a statement.
“The cumulative growth for the period April-December 2013-14 over the corresponding period of the previous year stands at (-) 0.1 per cent,” the statement added.
The CSO data showed that the manufacturing sector had actually witnessed a production fall of 1.6 per cent in December, with eight out of the 22 industry groups in this sector registering production declines during December.
The CSO said the industry group radio, TV and communication equipment and apparatus “has shown the highest negative growth of 35.7 per cent”, followed by furniture manufacturing, office accounting and computing machinery.
To have done well were electricity, mining, basic goods intermediate goods. While the electricity sector registered a growth of 7.5 per cent, basic goods sector reported a growth of 2.4 per cent and intermediate goods (4.5 per cent). Mining growth was 0.4 per cent, the data showed.
There were a few groups that did not fare well; for instance, capital goods output witnessed a fall of 3 per cent. Similarly, consumer durables recorded a negative growth of 16.2 per cent.
Moreover, while consumer non-durables grew 1.6 per cent, the overall performance by consumer goods was not good as it declined 5.3 per cent.
Better January
The manufacturing sector scenario should look up in January, if one were to go by independent estimates. In a February 3 report, HSBC said Indian manufacturers rode a spurt in demand from domestic and overseas clients to register the sector’s fastest growth over the past 10 months in January, signalling an improvement in operating conditions.
The HSBC India Purchasing Managers’ Index (PMI) posted 51.4, up from 50.7 in December, the highest reading since March 2013, but at the same time, it pointed to only a “marginal pace of expansion that was well below the series average” of 55.1, HSBC said in a statement.
It said supplier performance also improved in the latest month for the first time since September 2013. Anecdotal evidence suggested that shorter delivery times reflected a greater availability of raw materials at vendors.
Amid reports of new business gains, purchasing activity in the Indian manufacturing economy rose at the start of 2014, although the pace of expansion was only slight and well below the series average. Growth of buying activity was largely centred on the consumer goods sub-sector, HSBC said.
“Manufacturing activity moved into higher gear led by faster growth in new orders,” said Leif Eskesen, Chief Economist for India and ASEAN at HSBC.
Inflation Cheers
As noted by RBI in its January 27 statement, the inflation scenario has begun to soften. Wednesday’s CSO data showed India’s annual rate of inflation in January bettered beyond predictions to a 24-month low of 8.79 per cent, primarily on account of food prices moderating.
A Reuters poll had earlier forecast January consumer price inflation would ease to 9.4 per cent from an annual 9.87 per cent in the preceding month. Food prices rose 9.9 per cent in the month under review as compared to January 2012, much slower than the 12.16 per cent upswing registered in December.
Incidentally the RBI, which expects retail inflation to stay above 9 per cent in the January- March 2014 – the fourth quarter of the April 1 2013-Marh 31 2014 financial year – has upped its benchmark interest rate three times since September in an effort to contain India’s high inflation.
Trade Balance
All eyes are now on India’s fiscal-end current account deficit. It halved its trade deficit last month compared to a year-ago period, despite an export sluggishness brought about by a 13 per cent decline in overseas gems and jewellery orders – making January the third month in a row to post single-digit growth.
However, imports fell a massive 18.9 per cent in January 2014 compared to the month before, pulling down trade deficit to $9.92 billion. In January 2013, the current account shortfall was almost double at $18.97 billion.
India has targeted keeping the trade deficit pegged under $50 billion, and on Tuesday, Commerce Secretary Rajeev Kher said he didn’t see much to fret over, and that the country would succeed in meeting its export target of $325 billion for the current financial year.
He had, however, admitted the going wouldn’t be smooth.
“It is a tough call, but achievable,” Kher told media persons in Delhi while releasing the trade data for January. “Mostly, March shows reasonably good numbers. One should hope things would improve.”