NEW DELHI: India’s industrial production rose at the fastest pace in at least nine years, clocking a 22% jump in March, on the back of a 19% decline a year ago.
What will, however, provide some relief to policy makers is the softening of retail inflation — the key measure used by the Reserve Bank of India (RBI) for its monetary policy actions. Retail inflation, based on consumer price index (CPI), moderated to a three-month low of 4.3% in April, although edible oil and meat & fish registered double digit increase. Overall food price index saw a muted 2% rise.
Again, last year’s lockdown — resulting in supply disruptions pushing up prices — seems to have played a part in the April numbers. “As the lockdown base fades away, we expect the CPI inflation to bounce back to an average of 5% in the remainder of H1 FY2022, ruling out the possibility of furtmodative for much of 2021,” said ICRA chief economist Aditi Nayar.
The bad news on the factory front is that this is the second consecutive year of declining output with an 8.6% her rate cuts to support economic activity and sentiment. However, with the economic outlook remaining uncertain in light of the continuing pandemic, we expect the monetary policy stance to remain accomcontraction witnessed in 2020-21 on the back of a 0.8% fall in the previous financial year. Besides, despite the index of industrial production (IIP) climbing to 143.4 in March 2021, it was still short of the March 2020 reading of 144.1.
With the country back to a near lockdown situation across a majority of the states, industrial activity is expected to be hit in the coming months due to the second wave of Covid-19. Statistically, things may not look as bad in April as factory output had collapsed by a massive 58% in April 2020 when economic activity came to a grinding halt.
“Growth numbers in industrial production from April to August 2021 will be impressive as there were five successive negative growth rates last year. Hence, while month on month growth rates will be weak due to the lockdown, the yo-y numbers will be impressive. We should be guarded in our interpretation,” Care Ratings said in a note.