Inflation ebbs, but factory growth dismal

India’s factory output grew by a better-than-expected 0.6% in February from a year ago, but the news, still dismal, was partly offset by a slight easing in retail inflation for March at 10.39%.

India’s factory output grew by a better-than-expected 0.6% in February from a year ago, but the news, still dismal, was partly offset by a slight easing in retail inflation for March at 10.39%.

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The factory output, which was 4.3% in the year-ago period, dipped primarily on account of poor performance in manufacturing, power and mining.

However, capital goods output grew 9.5%. Overall, in April to February 2012-13, the IIP or Index of Industrial Production grew 0.9%. Worryingly, it had grown 2.4% year-on-year in January.

The silver lining on the retail inflation front came after five straight months of price rise. Vegetables and protein-based items softened, raising industry hopes that the Reserve Bank of India may reduce interest rates to boost growth.

Planning Commission deputy chairman Montek Singh Ahluwalia expressed relief that the news was not worse: “I am glad it (IIP) is not negative.”

Industry chambers CII and FICCI immediately called for a reduction in interest rates to improve money supply, increase demand and boost growth.