Source: The Economic Times, Mar 13, 2020
NEW DELHI: Factory output growth improved in January after a mild decline in December while retail inflation eased in February, offering the Reserve Bank of India (RBI) the option of an immediate rate cut to counter the disruption caused by the Covid-19 pandemic.
Data released by the statistics office on Thursday showed industrial output grew 2% in January against an upwardly revised 0.07% rise in December.
The simultaneously released Consumer Price Index (CPI) showed retail inflation slowing to 6.58% in February from 7.59% in January due to softer food inflation. “With domestic and global growth expected to face downside risks from the spread of Covid-19 and deflationary forces emerging, we see room for up to 50 bps of rate cut by the MPC (monetary policy committee), with any further easing contingent on the evolving growth environment,” said Upasna Bhardwaj, economist at Kotak Mahindra Bank.
The next policy review is scheduled for the first week of April.
The central bank said on Thursday it was prepared to take all necessary measures, raising the prospect of an early monetary review aimed at cutting rates, said experts.
The US Federal Reserve and other central banks have already announced measures to support national economies amid forecasts that global growth could slow to below 2% from 2.9% in 2019. OECD has lowered the global growth scenaro to 1.5% from 3% in a worst-case scenario if the spread of the virus is not contained.
The US Fed’s rate cut has increased the chances of a similar cut in India, said Indranil Pan, chief economist at IDFC First Bank. “A 35-40 basis point cut may not boost credit growth immediately but will arrest the negativity that has sunk in because of the coronavirus,” he said. A basis point is 0.01percentage point.
Food inflation fell to 10.81% from 13.63% in January and that in vegetables was 31.61% compared with 50.19% in January. Among protein-rich items, meat and fish inflation was 10.20% during the month, while that for eggs was 7.28%.
Independent economists expect a further dip in industrial production as global trade gets hit due to the coronavirus outbreak. “There is uncertainty on the production side and automobile sales are showing that,” said Pan.
“Given that January was not the period where the Covid-19 was active in other parts of the world, the impact on supply chains will be felt more in February and March,” said Madan Sabnavis, chief economist of CARE Ratings.
Manufacturing output rose 1.5% compared with 1.3% growth in the same month a year ago while electricity generation increased 3.1% in January against 0.9% growth in the year earlier.
April-January industrial growth was 0.5% against 4.4% in the yearearlier period. December factory output swung from a 0.3% decline earlier to a 0.07% increase. Mining output grew 4.4%.
At the use-based level, the steepest contraction was in the capital goods sector at 4.3% followed by 4% in consumer durables and 0.3% in consumer non-durables. Both consumer durable and nondurables have witnessed negative growth.