India's industrial output slows, but inflation eases

New Delhi, May 12: Indications of a strong industrial recovery were belied with the growth in India's factory output slowing to 2.1 percent in March, even as the retail inflation eased nearly 40 basis points to 4.87 percent in April, as per official data released on Tuesday.

Analysts said this should make India Inc. exert more pressure on the Reserve Bank of India (RBI) to ease its interest rates in its monetary policy update in June, or even earlier, since the industry needs a push for sustained growth, even as easing of inflation is a comforting factor.

The factory output had grown at a higher pace of 5 percent in February, while for the fiscal year 2014-15 as a whole the expansion at 2.8 percent was better than the contraction of 0.1 percent in the year before. In the case of retail inflation, it eased further from 5.25 percent in March.

Official data on the Index of Industrial Production (IIP) released on Tuesday suggested that the main reason for the slowdown was a sharp decline in the growth of manufacturing, which has the maximum weight, from 5.2 percent in February to 2.2 percent in March.

Of the other two major sub-indices, the index for mining expanded by 0.9 percent against 1.9 percent in February, while that for electricity was up 2 percent for March, against 5.9 percent in the month before.

For the year as a whole, that is during 2014-15, the indices for manufacturing, mining and electricity were up by 2.3 percent, 1.4 percent and 8.4 percent, against, (-)0.8 percent, (-)0.6 percent and 6.1 percent, respectively for the year before.

In the case of Consumer Price Index (CPI) numbers, also released on Tuesday, the food inflation continued to remain higher than the rise in general index -- at 5.11 percent in April. Yet, it showed an improvement over 6.14 percent in March and 9.21 percent in April 2014.

Even though the data on factory output and inflation were released after the close of markets on Tuesday, analysts said the anticipated fall in factory output had been factored in. It was seen as one of the main reasons for a 630-point, or near 2.5-percent, fall in a key equity index.

The India Inc welcomed the data, however it also called for immediate redressal of issues like high interest rates and infrastructure bottlenecks.

"While it is reassuring to see the positive growth in manufacturing for 2014-15, but the growth remains tepid," said Jyotsna Suri, president, Industry body Federation of Indian Chambers of Commerce and Industry (Ficci).

"Critical constraints for the sector like high interest rates, infrastructure bottlenecks, low domestic and export demand are an area of concerns for the sector and may continue to impact the growth of the sector in coming months."

According to Suri, the overall business confidence has improved in the last few months and that the industry is hopeful that steps taken by the government would yield benefits.

Another leading industry body PHD Chamber of Commerce and Industry said that the factory output is not consistent with the various reforms undertaken by the government.

"First and foremost must be the revival of demand scenario especially the rural demand in the country which is impacted by multiple factors of which sub-sided growth of income levels, slower growth of employment, increasing costs of credit," said Alok B.Shriram, president, PHD Chamber.

"So, at this juncture, economy needs to be refueled with overhauling of structural constraints from the grassroot level."

However, Shriram welcomed the decline in inflation citing it as 'inspiring' as it will create more room for softening of monetary policy stance and help demand to reinvigorate.

The Associated Chambers of Commerce and Industry of India (Assocham) said that the government needs to keep on pushing more ground level reforms and improve implementation so as to realize the true potential of the manufacturing sector and also generate employment opportunities.

"The chamber feels that it is extremely important for the growth momentum to be maintained. Concentrated and sustained efforts need to be targeted at reviving the electricity, basic and the consumer durables sector," said D.S. Rawat, secretary general Assocham.

"Government needs to address the peculiar challenges faced by these segments which would then further boost the industrial growth of the economy.

IANS