Inflation quickens in August, even as industrial growth sees mild recovery
New Delhi: India’s industrial production recovered to grow only mildly as growth in manufacturing output remained flat with introduction of goods and services tax (GST) which continued to disrupt production networks while retail inflation quickened in August ruling out any rate cut by the central bank in the near future.
Data released by the Central Statistics Office showed Index of Industrial Production (IIP) grew at 1.2% in July from a contraction of 0.2% a month ago. Mining and electricity sectors however grew at robust 4.8% and 6.5% respectively in July. In terms of industries, eight out of the twenty three industry groups (as per 2-digit NIC-2008) in the manufacturing sector have shown positive growth during the month of July 2017
Consumer price index based inflation continued to rise for the second consecutive month, by 3.36% from 2.36% a month ago as food inflation turned positive after three months of contraction.
India’s GDP growth unexpectedly slowed to 5.7% in the June quarter, the slowest pace in three years, underlining the disruption caused by the uncertainty related to the rollout of the goods and services tax (GST) even as the Indian economy is struggling to recover from a shock demonetisation.
The Reserve Bank of India (RBI), which cut its repo rate by 0.25 percentage points last month, retained its neutral policy stance, citing uncertainty on the future trajectory of inflation because of several uncertainties. “If states choose to implement salary and allowance increases similar to the centre in the current financial year, headline inflation could rise by an additional estimated 100 basis points above the baseline over 18-24 months. Also, high frequency indicators suggest that price pressures are building up in vegetables and animal proteins in the near months,” it added.
One basis point is one-hundredth of a percentage point.
The second volume of the Economic Survey 2016-17 presented on Friday in Parliament took a contrarian view and maintained that India is undergoing a structural shift toward low inflation, mostly due to changing dynamics in the oil market, which has capped upside risks.
“More recently such shifts seem to have been missed, for example, in the last 14 quarters, inflation has been overestimated by more than 100 bps (basis points) in six quarters with an average error of 180 bps,” it said.