Despite India’s economic growth receiving a major boost after a revision in the definition of gross domestic product (GDP) and the base year for calculating it, concern about industrial production continues, going by official data released on Thursday. Adding to worries, Consumer Price Index (CPI)-based inflation rose in January compared to December, another set of data showed.
Industrial growth slowed to 1.7 per cent in December from 3.9 per cent in November, owing to low consumer durable goods and mining output, while CPI inflation rose to 5.11 per cent in January from 4.28 per cent in December. The Reserve Bank of India has set a target of restricting inflation to eight per cent by January 2015 and six per cent in January 2016.
Thursday’s IIP data might dampen the euphoria over the 7.4 per cent growth in India’s GDP for 2014-15, as projected by advance estimates.
As was the case with GDP, the CPI also saw a revision in base year — from 2010 to 2012. Along with that, the weight of items was also tweaked on the basis of the consumer expenditure survey for 2011-12, against that for 2004-05 used so far. According to the previous base year and weight, inflation stood at five per cent in December.
Chief statistician TCA Anant said, “Inflation in 2014-15 will be lower than in 2013-14.” He added besides changes in the weight of items and groups, “we have shifted to a geometric mean for computing inflation from the arithmetic mean used in the previous series”.
For the Index of Industrial Production (IIP), the base year was maintained at 2004-05. As such, it might be somewhat difficult to ascertain the impact of the index reading on GDP, though experts say it will impact GDP growth for the December 2014 quarter (7.3 per cent).
In the December quarter, industrial production was muted, increasing only 0.46 per cent, largely because IIP had contracted 4.2 per cent in October.
In the GDP data for 2014-15, industrial growth of 3.85 per cent for the third quarter was considered.
National Statistical Commission Chairman Pronab Sen said, “Its (IIP’s) impact on GDP calculations would be a little bit lower.” Data on GDP growth for the December quarter were released before the IIP numbers were announced, a first.
Within the IIP, mining contracted 3.2 per cent in December, against 2.6 per cent in the corresponding month last year, while the manufacturing segment, which accounts for most of the index (75.5 per cent), rose 2.1 per cent, compared with a fall of 1.1 per cent in December 2013.
Electricity generation increased 4.8 per cent, against 7.5 per cent in the year-ago period.
The biggest drag on manufacturing was consumer durables, which continued to decline despite good automobile sales.
In December, production of these goods fell nine per cent, against 16.4 per cent in December 2013.
The fact that automobile sales fell in January might further hit growth in the consumer durables segment.
“The sector is likely to post further losses, as the impact of temporarily increased production due to an excise duty holiday on auto sales wears off. In January, automobile production slowed to two per cent year-on-year from 6.3 per cent in December,” said YES Bank chief economist Shubhada Rao.
The new CPI numbers showed food inflation was 6.06 per cent in January this year, which raised overall inflation to 5.11 per cent from 4.28 per cent in the previous month; in the new series, food items hold less weight than earlier.
The break-up for December wasn’t available. Within food items, inflation for fruit stood at 10.62 per cent in January, milk and milk products 9.38 per cent, pulses 9.37 per cent and vegetables nine per cent.
“While it would be premature to make strong conclusions based on an incomplete set of information, subdued inflationary momentum is the common underlying factor for the new and old indices,” said YES Bank’s Rao.
As the new CPI considers the consumption expenditure survey for 2011-12, food & beverages and fuel & light hold less weight in it.
Housing (rent) accounts for more in the index, as do clothing and footwear, health and education.
In the revised series, the number of items considered has been increased from 437 to 448 in rural areas (11 new items have been added) and from 450 to 460 in urban ones (seven items have been dropped and 17 added).