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Good news on 3 fronts for Indian economy: Monsoon, inflation, industry

Official data forecast rains during the upcoming monsoon season to be above normal, retail inflation has fallen to a six-month low and factory output is up after three months of decline.

business Updated: Apr 13, 2016 12:47 IST
Indian economy

The manufacturing sector, however, continues to be under pressure, managing a growth of 0.7% in February.(AFP File Photo)

Indian economy has much to cheer about, going by the bouquet of good news that has come in.

On Tuesday, official data forecast rains during the upcoming monsoon season to be above normal, retail inflation fell to a six-month low and factory output was up after three months of decline.

The Indian Meteorological Department said that after two straight years of drought, India is likely to be showered with above-normal rains in the upcoming monsoon season with a probability of more than 94% precipitation.

Then the Central Statistics Office said India’s factory output for February logged a growth of 2% after three months of decline, even as annual retail inflation fell to 4.83% in March from 5.26% in February.

The annual food inflation for the month also showed a decline to 5.21% from 5.30%. But the manufacturing sector continued to be pressured, barely managing a growth of 0.7% in February, according to data released by the Central Statistics Office on Tuesday.

Read | After 2 parched years in a row, Met predicts bountiful monsoon

Data on consumer price index also showed that for rural India, the annual inflation fell to 5.7% from 6.05%, while for the urban dwellers, the price rise in the 12-month period till March was 3.95%, as opposed to 4.30% for the like previous ended February.

In the case of the Index for Industrial Production, the overall growth was mainly led by a 9.6% growth in electricity output, even as mining activity in February -- the latest period for which data is available -- expanded by 5%.

The markets appear to have sensed the positive outcomes. The sensitive index (Sensex) of the BSE was rather flat for the bulk of the day. But as soon as the predictions on monsoon came, it shot up to eventually end with a gain of 0.49%. On Monday, it had gained 1.41%.

Data on industrial production and retail inflation came after the close of trading hours.

India Inc. was elated by the forecast on the upcoming rainy season.

“The prediction would be a great mood changer for industry, as revival of rural demand leads to a turn in investment cycles. This will take the economy to a higher trajectory of around 8% growth,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII).

He said the prospect of above-normal monsoon will help bolster farm productivity, alleviate rural distress, boost rural incomes and consumption demand, augment food supply and keep the inflation under check.

Indian industry also reiterated its call for further easing interest rates.

Industry chamber Assocham expressed the hope that the budget’s commitment towards fiscal consolidation, combined with the Reserve Bank of India reducing the repo rate by 25 basis point earlier this month, would “further help industry in gaining a strong foothold and sustained growth.

“Competitive interest rates are necessary for reviving investor sentiments, which in turn would help put the economy back firmly on growth trajectory. However it is now the responsibility of banks to pass on benefits of rate cuts to the end consumer,” it said in a statement.

“While there is an immense potential to grow for manufacturing, but currently, with the demand scenario not so optimistic, industry is also cautious on any large scale expansion,” said Federation of Indian Chambers of Commerce and Industry president Harshavardhan Neotia in a statement.

Read | El Nino impact: Drought may hit exporters’ rice stocks, says analyst

Indian Meteorological Department director general Laxman Singh Rathore earlier told reporters that “for the last 31 years, we have had deficient rainfall. But there are better days ahead”.

“The monsoon (rains) is likely to stay between 104% to 110% of the normal and it is likely to have a fair distribution across all the parts of the country,” Rathore said. “There is a possibility of excess monsoon also.”

According to the Met’s prediction, the chances of a normal rainfall during this monsoon season was 30%, 34% for above-normal, and 30% for excess. On the flip side, chances of below-normal rain were just five percent and for deficient rain, nearly one percent.