India's retail inflation inched up to a five-month high of 3.85 per cent in March while index of industrial production (IIP) contracted by 1.2 per cent in February.
Not only the IIP data for the month of February 2016 is disappointing, even at aggregate level— April-February FY17—it shows a flat growth as compared to 2.6 per cent growth during the same period in FY16.
Concerns on inflation has been the reason why the Reserve Bank of India maintained a status quo in its policy review recently. In its monetary policy review on April 6, the RBI said that headline retail inflation is set to undershoot the target of five per cent for the March quarter in view of the sub-4 per cent readings for January and February. For 2017-18, the RBI projected inflation to average 4.5 per cent in the first half of the year and 5 per cent in the second half of the financial year. The current data will further encourage the RBI to hold rates in its policy review.
"The data with respect to retail inflation is on expected lines and confirms the RBI’s concern on this account. Given the way inflation has panned out in recent few months and if it follows the trajectory RBI has sketched in its first bi-monthly monetary policy statement of FY18 then we are in for a long pause on policy rates and in case monsoon behaves abnormally then even a reversal in rate cycle", said Sunil Sinha Principal economist at India Ratings.
Experts feel that while the overall macro economic environment is conducive for growth, there are cyclical factors both at the global as well as domestic level making industrial/ manufacturing recovery a long drawn out process.
“Pent-up demand after demonetisation, lower bank lending rates, second tranche of payments based on the Seventh Pay Commission recommendations, and an uptick in global oil, metals and agri-commodity prices after three benign years, will slowly push inflation higher in fiscal 2018”, rating agency Crisil had said last week in a release.
