Published On : Wed, Jan 13th, 2016

Double blow to economy: IIP plunges to over 4-year low; inflation accelerates


inflation iipNew Delhi/Nagpur: Dragged by poor manufacturing output, industrial production plunged to an over four-year low, contracting 3.2 percent in November, while retail inflation inched up in December, a set of data which RBI will consider in its monetary policy review next month.

The Index of Industrial Production (IPP) had expanded by 5.2 percent in November, 2014.

This is the worst performance since October 2011 when IIP had contracted by 4.7 percent. The IIP data was released by by the Central Statistics Office (CSO) this evening.


The retail inflation measured on Consumer Price Index (CPI) increased marginally to 5.61 percent in December, mainly on costlier vegetables and cereals. The retail inflation is on the rise for five consecutive months.

The CPI food inflation too rose to 6.40 percent during the month, another government data showed.

Vegetables prices grew 4.63 percent while prices of pulses jumped 45.92 percent.

The IIP data revealed there was sharp decline in the manufacturing sector and as well as in capital goods.

The industrial production growth in October, however, was slightly revised upwards to 9.9 percent from provisional estimates of 9.8 percent released last month.

The manufacturing sector, which constitutes over 75 percent of the index, contracted by 4.4 percent in November as against a growth of 4.7 percent in the same month last year.

Capital goods output, which is a barometer of investment, contracted by 24.4 percent in November 2015 compared to a growth of 7 percent in same month of previous year.

All eyes are now on RBI’s February 2 monetary policy review. The industry also has lot of expectations from Finance Minister Arun Jaitley’s Budget to be presented next month.

On IIP data, FICCI President Harshavardhan Neotia said it underlines the need for more measures to stimulate investments and deeper structural reforms.

On CPI data, Richa Gupta, Senior Director of Deloitte India said: “…RBI action on the rates front is unlikely anytime soon and would be contingent on the government’s expenditure plans over the next one year”.

Commenting on the IIP data, Chief Economic Arvind Subramanian said there were lesser number of working days in November on account of Diwali holidays and Chennai floods too impacted industrial production.

“When October number came, which was very positive, we had said that could be artificially high and this is probably artificially low,” he told reporters.

Seventeen out of 22 industry groups in the manufacturing segment showed negative growth during November 2015 compared to the corresponding month of the previous year.

The electricity sector, which constitutes about 10 percent of the index, also showed dismal performance as it grew by just 0.7 percent in November 2015 compared to 10 percent growth in same month a year ago.

The mining sector output grew by 2.3 percent in November 2015 against 4 percent growth in the same month a year ago.

Overall consumer goods production grew at 1.3 percent in November 2015 against contraction of 1.6 percent in same month of 2014.

As per the CPI data, retail prices of cereals and products moved up by 2.12 percent in December, from 1.7 percent in November.

The growth in prices in meat and fish stood out at 6.57 percent as against 5.34 percent in November while that of eggs was at 0.97 percent, from 0.5 percent in the previous month.

“We are not surprised as this is a very sticky consumer inflation, but is well within the RBI target of 6 percent.

Once the base effect comes into play, I see a downward trend in CPI and a very strong case for interest rates coming down,” Yes Bank CEO and MD Rana Kapoor told reporters.