CPI, too, offers little comfort.
By R. Chandrasekaran
CHENNAI: The Indian government released two sets of data on Wednesday, and there was nothing much to cheer about in both. The index of industrial production (IIP) advanced two percent in April, below the experts’ predictions of 2.7 percent.
The consumer price inflation, or retail inflation slowed moderately to 9.31 percent in May, the third consecutive month the CPI slowed.
The April IIP data comes amidst the government revising its March data upwardly to 3.4 percent from 2.5 percent. Data from the government’s Statistics Office indicated that manufacturing rose 2.8 percent. Interestingly, about 76 percent of industrial production is contributed by manufacturing sector. Also, of the 22 industrial groups within the manufacturing segment, 13 industries recorded upside in April compared to the last year.
However, a key aspect of the IIP is the sharp fall in capital goods production to one percent from 6.9 percent in the preceding month. Investments in capital goods are a measurement in any economy. Therefore, the sharp drop suggests weak confidence among the business community.
Consumer durables also recorded a decline of 8.3 percent on top of a 4.5 percent contraction in March thereby registering fifth consecutive fall. Consumer non-durables dropped 12.3 percent.
Despite continued economic sluggishness and the not-so-impressive business confidence, IIP recorded growth in April compared to a contraction last year, considering it was the first month in the fiscal year ending March 2014. However, the expectations of recent government actions failed to show the anticipated results, suggesting a slower recovery than predicted.
Obviously, the trade bodies are not happy with the IIP data and want the RBI to announce rate cuts in its next meeting. Federation of Indian Chambers of Commerce and Industry (FICCI) president Naina Lal Kidwai said, “Overall the investment sentiments remain subdued in manufacturing and infrastructure and unless we see speedy implementation of projects stuck due to inter-ministerial clearances, industrial growth is likely to remain moderate.”
The other data, CPI, slowed modestly to 9.31 percent in May from 9.39 percent in April. However, food prices rose slightly faster to 10.65 percent in May from 10.61 percent in the previous month. There is every chance that the Reserve Bank of India might argue that the slower CPI is not enough to warrant interest rate reduction as the food prices continue to remain at the elevated level.
The fact that the consumer durables recorded one of the worst performances in April since 2009 would suggest at least a few things. One is that whatever the interest rate reduction done so far has not altered the consumers’ buying behavior and the other is the failure to pass on the interest rate reduction to consumer fully. Consumers are also expecting more rate cuts before contemplating buying, while the job insecurity continues to prevail over their buying options.