Nirmala sees green shoots; data shows deep slowdown

Nirmala Sitharaman sees green shoots; data shows deep slowdown

Union Minister for Finance and Corporate Affairs Nirmala Sitharaman. (PTI Photo)

A day after Finance Minister Nirmala Sitharaman saw green shoots in India's 11-year low economy, two macro data indicators — retail inflation and factory production — came as absolute shockers, which may tie the Reserve Bank of India's hands from giving a rate cut even in the April monetary policy review.

While retail prices rose to 7.6% in January, rising to its highest since 2014, industrial output shrank by 0.3% in the previous month.

The price rise in vegetables spread over to other areas too engulfing almost all protein items – milk, meat, egg, and pulses, which rose at a quicker pace. Even transport and communication became costlier in January compared to a month earlier. Food inflation rose to 13.63% from (-) 2.99% in the same month last year.

On the factory output side, almost everything from consumer non-durables like eatables, clothing soaps and shampoo to capital goods such as plant and machinery and, manufacturing, which makes up over three-fourth of the total index of industrial production, contracted in December.

Electricity generation -- a barometer for industrial activity -- saw a 0.1%t drop as against a growth of 4.5% last December.

There were the two data sets, which the finance minister boasted of when she almost dismissed the Opposition criticism of a slowdown during her reply to the debate on the union budget in Parliament Tuesday.

Barring in November last year, industrial production has been contracting for quite some time. The rising inflation and contracting industry are expected to impact the overall economic growth in the coming quarters.

"It is the consecutive second month, that CPI has breached the upper band of RBI's inflation target... if inflation continues to hover above 6%, we don't expect RBI to cut interest rate or change its accommodative policy stance," Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services, said.

Much to the chagrin of policy makers, even the core inflation, which strips off the volatile food and fuel, rose to 4.2% from 3.5%. Sticky core inflation suggests price rise is not temporary.

According to Deloitte the contraction in the IIP did not bode well for the overall economy as global headwinds already pose significant challenges to overall industries. With several factories being closed down in China due to the outbreak of coronavirus, the electronics and auto industry in India will likely be hit.

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