Green shoots? Factory output in negative zone

With the latest data showing yet another dip in manufacturing in December, economists say recovery may just not yet be on the horizon.
For representational purposes
For representational purposes

NEW DELHI:  Finance Minister Nirmala Sitharaman may have spoken too soon. A day after she said green shoots for economic recovery were visible, fresh government data released on Wednesday showed industrial production actually shrank in December 2019 by 0.3%, while inflation shot up to a five-and-a-half-year high of 7.59% in January 2020. 

In her reply to the debate on Budget 2020-21 in Parliament on Tuesday, Sitharaman had cited seven indicators, including a rebound in factory output in November, to claim that the country’s economy was on the mend. The FM was referring to the 1.8% growth in industrial activity, measured in terms of Index of Industrial Production, in November 2019 after three consecutive months of contraction. 

With the latest data showing yet another dip in manufacturing in December, economists say recovery may just not yet be on the horizon. 

Apart from poor performance of the industrial sector, the overhang of high inflation is also a risk to the health of the economy. Retail inflation at 7.59% is the highest rate since May 2014, when it was 8.33%. Consumer price index-based was 7.35% in December 2019. 

What pushed up retail inflation in January 2020 was high food inflation at 13.63% and rising fuel prices. 
While economists feel this might be the peak for the headline inflation rate, given that global oil prices have started cooling as have food prices in India, they fear India’s core inflation or rise in prices of manufactured goods is going up. “Core inflation is likely to rise further above 4% over the coming quarters. It means that while headline inflation will probably drop, it is also likely to remain above the RBI’s target throughout the year,” said Darren Aw, Asia Economist for Capital Economics.

“Admittedly, today’s industrial production figures might cast doubt on hopes for a near-term economic rebound… data suggest that this will be temporary. The manufacturing PMI rose to near an eight-year high in January,” said.

The cumulative IIP growth in April-December 2019 over the corresponding period of the previous year, according to the National Statistical Office

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