India’s retail inflation rose to a three-month high of 8.59% in April on high vegetable and food prices, while industrial output fell 0.5% in March, latest data released on Monday showed. The next government stares at a daunting challenge to tame prices and push growth.
High inflation will also likely dash hopes of a possible interest rate cut by the Reserve Bank of India (RBI), which will present its credit policy review next month.
Manufacturing output, which accounts for about 80% of India’s total industrial output, fell by 0.8% in March.
The RBI has raised lending rate three times in the last eight months to tame inflation by cooling demand. This has raised home loan equated monthly installments (EMIs).
RBI governor Raghuram Rajan has clearly stated on which side of fence the central bank is on the inflation-versus-growth debate and the RBI’s stated objective to bring down retail inflation to 6% by January 2016 leaves little room for rate cuts.
The spectre of a failed monsoon rain because of a probable El Nino — a weather glitch in the Pacific Ocean that affects weather patterns — looms large over the economy, which could push up food prices further in the coming months.
Capital goods output — a proxy for investment activity — contracted 12.5% during the month, mirroring how companies aren’t adding capacity lines, hit by weak demand, high loan rates and costly raw material.
A sluggish overall economy, high interest rates and fuel prices have stunted the growth story across the consumer goods industry with people deferring purchases of goods such as cars, TVs and refrigerators. That consumer durables output fell 11.2% in March mirrors this trend.
“The outlook for the manufacturing sector, as things stand, seems to be disappointing and bleak. This is also reflected in Ficci’s latest survey on manufacturing. Weak demand and investment conditions continue to plague the sector. We look to the next government and hold out strong hope that quick and bold reforms and implementation will enable a high growth path where manufacturing will play a significant role”, said Sidharth Birla, president, industry chamber Ficci.