Double blow: IIP contracts, inflation up at 11.24%

Manufacturing sector contracts 2% in October

After a gap of four months, India’s industrial production re-entered the negative zone in October posting a decline of 1.8 per cent and casting a shadow on hopes that the economy has bottomed out and there will be a turnaround in industrial activity anytime soon.

Retail inflation, on the other hand, touched an astounding 11.24 per cent mark in November backed by an exorbitant rise in food and vegetable prices which implies not enough has been done to augment supply mechanism by the government.

The poor than expected macroeconomic numbers leave a little room for the Reserve Bank of India to avoid raising policy interest rates in its December 18 review.

In the retail market, vegetable prices rose 61.6 per cent in November from a year earlier, compared with a 45.67 per cent increase in the previous month. Fruit prices rose 15 per cent. Pulses were dearer by 1.2 per cent, cereals by 12.07 per cent and milk products by 9.06 per cent in November.

The price rise of protein-rich items such as eggs, meat and fish was 11.96 per cent. Inflation in the food and beverages segment was 14.72 per cent compared with 12.56 per cent in the previous month.

The higher than expected print for retail inflation comes a close on the heels of Congress facing a humiliating defeat in four Assembly elections of Rajasthan, Madhya Pradesh, Chhatisgarh and Delhi. It also comes a day after RBI Governor Raghuram Rajan emphasised that all RBI efforts were firmly on controlling inflation. However, Finance Minister P Chidambaram has blamed it on state governments for not doing enough to control food inflation.

While rising inflation demanded a rate hike by RBI, a steep decline in factory output sought an accommodative monetary policy to revive demand in the economy. 

The decline in IIP during the month was underpinned by contraction in many of its sub-sectors such as manufacturing, mining, basic and consumer goods.  

The manufacturing sector, which constitutes about 76 per cent of industrial production, contracted 2 per cent in October as against a growth of 9.9 per cent from a year earlier. Capital goods production, a barometer for investments in the economy, grew 2.3 per cent in the same month. 

The mining sector, with a weight of about 14 per cent in the index, contracted 3.5 per cent in October as against a dip of 0.2 per cent a year earlier. 

Negative IIP growth rate and volatility in the macroeconomic situation, month after month, is raising concerns.