Industry growth hit, inflation up

Industry growth hit, inflation up

Industry growth hit, inflation up

Weeks ahead of the Budget, not all seems to be well in the economy. The latest official data released on Tuesday showed that while industrial production growth plummeted, inflation raised its head once again.

Adding to this, the global crude oil prices crashed to a 12-year low, implying a secular decline on the export front too.

A sharp fall in oil prices have already led to a drop in petroleum product exports, which has plunged by about 52 per cent, according to official data.

Tuesday’s data showed that industrial production declined by 3.2 per cent in November, backed by a sharp erosion in manufacturing production.

Rise in CPI
This is the steepest fall in factory production since October 2011. The data also showed a rise in consumer price inflation (CPI) for the fifth consecutive month due to increased food prices in December.

The CPI or retail inflation came in at 5.61 per cent, a marginal increase from November and substantial rise from the same period a year ago.

While prices of pulses rose by 46 per cent, prices of oil, meat and fish rose by 7 per cent. Vegetable prices, too, went up.An unexpected hardening in CPI inflation has almost muted the chances of the Reserve Bank of India (RBI) cutting interest rate any time soon, something which industries keep lobbying for in order to accelerate economic growth.

Ahead of the dismal data, the sensex fell 143 points or 0.6 per cent as investors gave up hope of faster rate cuts from the RBI in 2016.

Adding fuel to the fire, Oil prices fell toward $30 a barrel early on Tuesday, having plunged by 16 per cent in 2016 alone and prompting OPEC to consider emergency action.

Worries about slowing economic growth, especially in China, is driving the sharp drop in crude prices. Producers in the US and West Asia, too, are pumping oil at a fast clip leading to a drop in demand and a global supply glut.

Though a net importer of crude oil, India cannot be insulated from these developments as it also exports petroleum products. The country has already suffered a decline in exports for the past 12 consecutive months and is expected to end the 2016 fiscal at $270 billion, a 13 per cent drop from $309 billion achieved in the last fiscal.

The big reason behind this is the sharp plunge in petroleum product exports.
On the industrial production side, manufacturing contracted 4.4 per cent, while capital goods declined close to 25 per cent. Consumer non-durables, which are mostly the FMCG products and perishable items, too, declined.

Growth in the consumer non-durable sector is a barometer of robustness in rural demand. Tuesday’s data pointed to a weak rural demand due to two successive years of sub-par monsoon affecting agriculture growth, farm incomes and rural wages.

The latest figures released by the Agriculture Ministry last week showed that wheat sowing in the current Rabi season has declined nearly 6 per cent, confirming to more pressure on the farm sector.