The industrial production (IIP) data reveal a pick-up in manufacturing and electricity. The news of easing food prices driving retail inflation will further aid investor mood.
This is one piece of news we haven't heard in months — growth going up and inflation going down. Positive data on retail inflation and factory output, released on Thursday, show the economy is clearly on the mend.
While Consumer price inflation (CPI) eased to 8.28 percent in May from a three-month high of 8.59 percent in April aided by lower food prices, the industrial production (IIP) data for April 2014 rose 3.4 percent year on year, revealing a pick-up in manufacturing, electricity and capital goods sectors.
Specifically, capital goods rose 15.7 percent, basic goods grew 6.8 percent, manufacturing increased 2.6 percent and electricity climbed a whopping 11.9 percent since April 2013 . However, consumer goods show a contraction of negative 5 percent over previous year.
For the past two years CPI had been rather sticky at around 10 percent making it difficult for Reserve Bank of India (RBI) to cut interest rates even though economic growth fell below 5 percent.
Thursday's numbers will bring fresh cheer to the market which has been rallying in hope of an economic turnaround. Prime Minister Narendra Modi has promised to break the spell of weak growth and high inflation.
However, if fears of El Nino come true, India may staring at drought followed by higher inflation followed by tough monetary policy decisions.
Standard Chartered Global Research has forecasted FY15 CPI inflation at 8.0%, significantly lower than 9.4% in FY14. The research further predicts GDP growth at 5.3 percent in FY15 (year ending 31 March 2015) and 5.8 percent in FY16.
On Wednesday, trade ministry released data for May 2014 which showed trade deficit increasing to USD 11.2 billion, highest since July 2013.
Posted by Jhini Sinha Phira
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