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Business News/ Politics / Policy/  IIP contracts 1.3% in December; CPI inflation inches up to 5.69% in January
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IIP contracts 1.3% in December; CPI inflation inches up to 5.69% in January

India's factory output contracted for the second month in a row in December, while retail inflation remained within RBI's target of 6% in January

The Index of Industrial Production (IIP) shrank 1.3% in December led by manufacturing after Diwali shutdowns led to a 3.4% contraction in IIP in November. Photo: BloombergPremium
The Index of Industrial Production (IIP) shrank 1.3% in December led by manufacturing after Diwali shutdowns led to a 3.4% contraction in IIP in November. Photo: Bloomberg

New Delhi: India’s factory output contracted for the second month in a row in December while retail inflation remained within the central bank’s target of 6% in January, ahead of the National Democratic Alliance (NDA) government’s second full year budget to be presented on 29 February.

The Index of Industrial Production (IIP) shrank 1.3% in December led by manufacturing after Diwali shutdowns led to a 3.4% contraction in IIP in November. Consumer Price Index (CPI)-led inflation accelerated to 5.69% in January led by a 43% jump in prices of pulses, from 5.61% a month ago.

The Reserve Bank of India (RBI), in its monetary policy review on 2 February, said the near-term outlook for industrial activity may be constrained by adverse base effects in the fourth quarter and still weak exports, although a pick-up in corporate profitability on the back of declining input costs may provide an offset.

RBI said inflation has evolved closely along the trajectory set by the monetary policy stance. “With unfavourable base effects on the ebb and benign prices of fruits and vegetables and crude oil, the January 2016 target of 6% should be met," it said.

Going forward, under the assumption of a normal monsoon and the current level of international crude oil prices and exchange rates, RBI said inflation is expected to be inertial and be around 5% by the end of fiscal 2016-17.

“However, the implementation of the VII Central Pay Commission award, which has not been factored into these projections, will impart upward momentum to this trajectory for a period of one to two years. The Reserve Bank will adjust the forecast path as and when more clarity emerges on the timing of implementation. Vagaries in the spatial and temporal distribution of the monsoon and the impact of adverse geo-political events on commodity prices and financial markets add additional uncertainty to the baseline," it said.

The Indian economy is projected to grow at 7.6% in 2015-16 against 7.2% in the previous year on the expectations of a 9.5% expansion in manufacturing output.

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Published: 12 Feb 2016, 05:35 PM IST
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