India | India's industrial output dives as inflation jumps

India’s industrial output dives as inflation jumps

January 12, 2016 11:48 AM (UTC+8)

 

India’s annual industrial output experienced a huge drop in November, at the same time retail inflation increased, making the central bank’s job of keeping the economy moving amid a time of international deflation much harder.

taj22Industrial production contracted 3.2% year-over-year in November in the latest tally, a stunning reversal of the upwardly revised growth of 9.9% in October, Ministry of Statistics data showed on Tuesday.

A Reuters survey of economists had predicted that industrial output would grow by 2.3% in November.

It was the first drop since October 2014 and the worst decline in four years.

Analysts told Reuters the contraction would not have much impact on monetary policy because the central bank is focusing on retail inflation.

“IIP (Indian industrial output) continues to be an extremely volatile indicator,” Shivom Chakravarti, senior economist at HDFC Bank told Reuters. “The next big step is the budget and what kind of fiscal consolidation the government announces. That is the bigger driver for monetary policy going ahead.”

The government’s budget for 2016/17 will be released at the end of February and officials expect the service tax to be increase to 16% from 14.5%.

Weak farm output and declining exports led the government to lower its economic growth target to between 7% and 7.5% for the fiscal year ending March 31, down from an earlier estimate of 8.1% to 8.5%.

Meanwhile, the consumer price index rose to 5.61% from a year earlier, in line with the expectations of economists, the data showed. Retail prices advanced 5.41% in November.

Analysts told Reuters that irregular rainfalls and a plan to raise the salaries of federal government employees by nearly 24% both pose risks to the Reserve Bank of India’s target of capping retail inflation at 5% by March 2017.

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