India’s economy seemed to have sputtered as retail inflation rose to 5.69% in January, while factory output fell 1.3% in December, the latest data released on Friday showed.
Factory output, measured by the index of industrial production, fell 3.4% in November and expanded 3.6% in December last year. The manufacturing sector, which accounts for two-thirds of the country’s industrial output, shrank 2.4% in December, suggesting factories were cutting production.
Though the deceleration in December could be partly attributed to production halted in factories shut by floods in Chennai, analysts said persistent moderation in industrial output was a cause for worry.
Factory output grew 3.1% during April to December 2015, marginally higher than the 2.6% expansion in the same period the previous year. “The cumulative number of 3.1% is higher than last year, so we are on track and there is no need for worry,” Shaktikanta Das, economic affairs secretary, told HT.
There is heightened anticipation that finance minister Arun Jaitley will announce measures to boost growth and investment to create jobs and multiply income in the budget for 2016-17 that will presented on February 29.
“The floods in parts of southern India were a one-off factor that adversely impacted factory output in December 2015,” Aditi Nayar, senior economist, ICRA, a credit rating and research firm, said.
Analysts have been closely watching factory output data as the government in its latest estimates this week forecast that India’s economy will grow at 7.6% in 2015-16, the fastest in five years, buoyed by a strong revival in the industrial sector.
“A second consecutive month of negative growth in factory output once again demonstrates that the industrial recovery is still uneven and fragile,” said Sunil Kumar Sinha, principal economist at India Ratings and Research.
While the government has been upbeat over the latest data that show India will canter past the rest of the world, lingering doubts remain over the new national income calculation methodology.
Retail inflation, a gauge to measure changes in shop-end prices, rose to a 17-month high driven by costlier food items, particularly pulses that grew 43.32% in January.
Inflation has quickened for six consecutive months and is inching towards the Reserve Bank of India’s (RBI’s) short-term threshold of 6%.
According to an RBI official, inflation is likely to be around 5.5% for the next two to two-and-a-half months.
Inflation could rise on growing house rents and greater demand for consumer goods on the back of the expected seventh pay commission-recommended payouts that will likely result in a surge in spending on assets such as houses and cars.