India Ratings has come out with its report on industrial output. "Unseasonal rains in various parts of the country coupled with expectation of el-nino disrupting the normal monsoon this year does not augur well for the inflation outlook", says the report.
IIP Growth Turns Negative: Index of Industrial Production (IIP) growth once again turned negative (-1.9 percent) in February 2014. So far in FY14 industrial output growth has tuned its trajectory from negative to positive and again to negative five times. This clearly indicates the fragile nature of industrial growth which is reeling under depressed consumption as well as sluggish investment demand. India Ratings & Research (Ind-Ra) believes it is unlikely to improve any time soon though some pick up in industrial output is expected on account of election related expenditure and the excise duty cut for the auto sector.
Monetary Policy - Expect Long Pause: Ind-Ra believes that RBI may go for a long pause on the policy rates. In its first bi-monthly monetary policy review on 1 April 2014 RBI maintained a status quo on the policy rates. The CPI for the month of February 2014 declined to 8.1 percent from 8.8 percent in January 2014. Although this is very close to the RBI's target of below 8.0 percent CPI inflation by January 2015, the decline in CPI inflation has been mainly due to the improved winter supply of vegetable and fruits. Ind-Ra believes that as the winter supply begins to wane the prices of vegetable and fruits can again surprise on the upside. Moreover, unseasonal rains in various parts of the country coupled with expectation of el-nino disrupting the normal monsoon this year does not augur well for the inflation outlook.
Manufacturing Sector - Misery Continues: The performance of the manufacturing sector which constitutes around 75 percent of the IIP is absolutely critical for the overall performance of the industrial sector. However, manufacturing growth has been in the doldrums now for more than two years. Similarly, the manufacturing sector has witnessed negative growth in seven of the last eleven months of FY14. It recorded -3.7 percent yoy growth in February 2014. Thirteen out of the twenty two manufacturing groups showed negative yoy growth in February 2014, led by TV and communication equipment & apparatus (-34.1 percent), electrical machinery & apparatus n.e.c (-24.6 percent), and wearing apparel, dressing and dyeing fur (-21.3 percent).
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