Dip in Manufacturing Index Slows Down Factory Output | SupportBiz

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Dip in Manufacturing Index Slows Down Factory Output

The inflation rate moved up due to sharp increase in the prices of food articles in general

India’s factory output growth decelerated sharply to 3.6 percent in September from 6.4 percent in the month before, even as the annual retail inflation for October moved up significantly to 5 percent from 4.41 percent in the month before. Food inflation was even higher at 5.25 percent, according to recent official Index Of Industrial Production.

“Despite some moderation in manufacturing growth in September as compared to previous month, we are hopeful of strong growth in manufacturing in the coming months as indicated by positive trend of capital goods sector growth”, said A Didar Singh, Secretary General, FICCI, while commenting on India’s Index of Industrial production

While the industrial production growth was lower on account of a dip in manufacturing index, the inflation rate moved up due to sharp increase in the prices of food articles in general and those for pulses in particular, as per the separate sets of data released by the ministry of statistics and programme implementation.

The annual inflation rate has firmed up to this level from 3.74 percent recorded for August.
He further added: “A cause for concern is the demand in both domestic and exports which remains muted that has the potential to slowdown the pace of recovery in manufacturing”.

As per the official numbers on the Index for Industrial Production, the index for mining rose 3 percent in September while that for manufacturing and electricity were higher by 2.6 percent and 11.4 percent respectively. The corresponding growth rates in the month before were 3.8 percent, 6.9 percent and 5.6 percent respectively.

Overall, however, the factory output for the first half of this fiscal was placed slightly higher at 4 percent, against 2.9 percent for the like period the previous year. The cumulative growth for the first five months was tad higher at 4.1 percent.

In the case of inflation derived from the Consumer Price Index for October, the rural areas saw a much higher price rise of 5.54 percent, as against 5 percent in the urban areas. In the month before, the inflation rates stood at 5.05 percent and 3.6 percent respectively.

Worryingly, the price rise in pulses and related products was as much as 42.2 percent, which pushed up the overall index for food and beverages to 5.34 percent. But the government said in a separate statement that the prices should ease soon as some 4,660 tonnes of pulses had been seized from hoarders and auctioned or disposed off in the market.

Among the states, the maximum inflation of 8.14 percent was reported from Andhra Pradesh, followed by 7.52 percent for Chhattisgarh, 6.57 percent for Karnataka and 6.14 percent for Rajasthan. Punjab reported the least inflation of 3.18 percent, followed by 3.37 percent in Kerala and 3.8 percent in Haryana.

“Government should continue to take bold measures to create an enabling environment for business to provide impetus to the manufacturing growth and investments. Recent reforms as introduced in FDI have added to overall investor confidence in our economy that will help push growth,” Singh lastly added.

Commenting on the industrial production data, Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII), said the factory output growth was expected to pick up in the third quarter of this fiscal, despite the moderation in the first half.

"CII expects a significant recovery in consumer demand in the second half on the back of lower interest rates. Investment demand is also picking up as public sector projects are being implemented by the government," Banerjee added. "There has been satisfactory growth in the manufacturing sector so far this year."

Regarding inflation, the industry chamber said it had been limited to touching the 5-percent mark in September despite the increase in the price of some food items, particularly lentils. "With aggressive measures in place to control the price increase, CII is confident of a moderation going forward."

The Reserve Bank of India and the union finance ministry had in February signed a monetary policy framework agreement under which the central bank will target retail inflation for policy rates.

The target for inflation was set at 4 percent, with a band of plus or minus 2 percentage points for the financial year 2016-17. There was also an interim target to bring consumer inflation below 6 percent by January 2016.