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Indian economic recovery on the ropes

The index of industrial production was dragged down by a sharp 3.5 per cent drop in mining and a 2 per cent fall in manufacturing. The drop in IIP was unexpected at a time when the economy is showing signs of revival. 

twitter-logo Manu Kaushik        Last Updated: December 12, 2013  | 20:47 IST
Indian economic recovery on the ropes

It could be a big setback for policymakers in the country. The index of industrial production (IIP) contracted 1.8 per cent in October, dragged down by a sharp 3.5 per cent drop in mining and a 2 per cent fall in manufacturing. The electricity sector, however, saw a marginal 1.3 per cent increase over the same month last year. Industrial production grew by 8.4 per cent in October last year.

Consumer goods, a barometer of industrial growth , dropped 5.1 per cent while consumer durables too registered a significant fall of 12 per cent. Among other sectors that saw huge falls were office, accounting and computing machinery, which dropped 27.2 per cent, and furniture manufacturing, which slumped 28.9 per cent.

IIP data forecasts varied. Karvy Stock Broking, for instance, had expected a much sharper 3.7 per cent drop.

The IIP slide coincided with an 11.24 per cent rise in the consumer price index (CPI) in November, fuelled by a massive 14.72 per cent rise in food inflation and a 7 per cent increase in fuel and light. CPI stood at 10.17 per cent last month. Inflation was up throughout the country, except Lashwadeep.

The drop in IIP was unexpected at a time when the economy is showing signs of revival. Gross domestic product numbers released end-November indicated some recovery. In the second quarter of 2013/14, GDP surged 4.8 per cent, 40 basis points higher than the first quarter numbers of 4.4 per cent.

Shubhada Rao, Chief Economist at Yes Bank, says it is difficult for the central bank to ignore the inflation numbers. "We have built in a probability of a rate hike in December review," she says, adding that all eyes are now set on the WPI (wholesale price index) numbers set to be released next week. 


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