Sharp dip in factory output, low inflation puts pressure on RBI to cut rate

In a fresh setback, industrial production saw the sharpest contraction in three years of 4.2% in October, though retail inflation dipped to 4.3%, putting pressure on RBI to cut rate to boost growth. Factory output as measured by Index of Industrial Production (IIP) declined due to contraction in manufacturing, capital goods and consumer items.

"It not only reflects slowdown in investments but also the deep rooted slackness in consumer demand which requires bringing down the interest rates urgently," said Ficci President Sidharth Birla while commenting on IIP data. "It would also need faster implementation of government's intentions to introduce reforms in which states have major role to play," he added. The factory output for the month under review was the lowest since October, 2011 when it had recorded a contraction of 4.74%.
IIP had declined by 1.2% in October last year. For September, it was revised to 2.8% from the provisional estimates of 2.5% released last month, according to the official data. For the April-October period, IIP is up 1.9%, as against 0.2% in same period of last fiscal. Manufacturing output, which constitutes over 75% of the index, contracted by 7.6% in October, compared to a dip of 1.3% in same month last. For April- October, the sector saw an output growth of 0.7%, compared to a contraction 0.1% in the year-ago period.
The production of capital goods, a barometer of demand, declined by 2.3% in October, as against a growth of 2.5% in same month of last year. For the April-October period, capital goods output is up 4.8%, as against a dip of 0.2% a year ago. Meanwhile, according to the Consumer Price Index data, cheaper food items helped retail inflation drop to a new low of 4.38% in November -- the fifth consecutive month of decline.
As per the IIP data, consumer goods output too contracted by 18.6% in October as against a decline of 5% logged a year ago. For the April-October period, the segment showed a contraction of 6.3%, compared to a decline of 1.7% in the same period of 2013-14. Overall, 16 of the 22 industry groups in manufacturing showed negative growth in October. 
As for the retail inflation, this is the lowest level CPI- based rate of price rise since thegovernment started computing the new series of data in January 2012. It stood at 5.52%in October 2014. It was more than double the current level at 11.16% in November 2013. The food inflation also came down to 3.14% in November as against 5.59% in the previous month.

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