Industrial output contracts for 3rd month in a row

Industrial output contracts for 3rd month in a row
NEW DELHI: Industrial output contracted for the third successive month in October, dragged down by a sluggish manufacturing sector, while retail inflation soared to a near three-and-a-half year high in November on the back of double-digit food inflation, largely led by vegetable prices.

The two datasets unveiled by the National Statistical Office (NSO) on Thursday highlighted more pain for the economy, already in the grip of a sharp slowdown.

Retail inflation, as measured by the consumer price index, rose an annual 5.5% in November, higher than the previous month’s 4.6% and way above the Reserve Bank of India’s comfort level of 4%. The food price index rose an annual 10% during the month, rising from the 7.9% in the previous month. This is the first time in nearly six years that food inflation has hit double digits, the last time being in December 2013.


Vegetable prices rose an annual 36%, while price of pulses shot up nearly 14% during the month.

“While the CPI food inflation rose to an uncomfortably high 10% in November 2019, a moderation in vegetable prices should douse food inflation to a large extent in early 2020, and healthy groundwater and reservoir levels bode well for rabi output and yields of various cereals. However, the year-on-year decline in the area sown under rabi pulses and oilseeds poses a concern, given the high inflation being recorded by some of these items,” said Aditi Nayar, principal economist at ratings agency ICRA.

Separate data released by the NSO showed the index of industrial production contracted 3.8% in October -- lower than the decline of 4.3% in the previous month and way below the 8.4% expansion in October 2018. All three components -- mining, manufacturing and electricity -- contracted during the month, highlighting the extent of the slowdown.

The capital goods sector, a key gauge of investment activity, fell 21.9% in November, compared with the 16.9% expansion in the year-earlier month. This was the tenth consecutive month of contraction and the sharpest in the past seven years.

The consumer durables segment contracted 18% during November, compared with the 17.4% expansion in October 2018, highlighting the demand slowdown in consumption. The sector contracted at the highest pace in the past seven years.

“We are expecting some revival in the coming months along with a favourable base for the rest of the months. On this premise, we are expecting industrial output to grow around 4% in FY20,” said Madan Sabnavis, chief economist at Care Ratings.

Economist said the RBI will opt to wait and watch and may not cut interest rates in this financial year, which ends in March.

“We believe that rising inflation till January 2020 may hold the rate cut for this financial year. As of now we are holding on to a pause in RBI rate action for February and April policies. The possibilities of a rate cut beyond April will be data dependent, but assign a low probability to such an action,” said Soumya Kanti Ghosh, group chief economic adviser at State Bank of India.