The simultaneously released Index of Industrial Production (IIP) showed a 3.1% rise in industrial output in May, slower than 3.8% in the year-ago pe-riod. Industrial growth was 4.3% in April, revised upward from 3.4% estimated initially.
Pulses inflation, at a 33-month high of 5.7%, was mainly responsible for the spurt in food inflation at 2.17% in June from 1.83% in May. Core inflation rose sequentially to 4.54%, reflecting weak demand conditions.
Retail inflation has stayed below the RBI’s mediumterm target of 4% for the 11th straight month and has opened up the possibility of more rate cuts.
“Despite a marginal pickup, inflation trajectory continues to remain benign in the year ahead,” said Upasna Bhardwaj, economist at Kotak Mahindra Bank. “With inflation in check and weakening economic growth, we continue to see room for further monetary accommodation.”
The RBI has cut policy rates thrice since February. In the most recent reduction last month, when it reduced the rate by 25 basis points, the central bank changed its policy stance to ‘accommodative’ from ‘neutral’ to help bolster growth. One basis point is one-hundredth of a percentage point.
India’s GDP grew 5.8% in the March quarter, the slowest in more than four years and overall growth for FY19 slumped to a five-year low of 6.8%.
The next meeting of the RBI governor-led Monetary Policy Committee is scheduled on August 5-7.
“The performance of the monsoon has been lagging behind and is already showing up in sowing,” said HDFC Bank senior economist Sakshi Gupta. “If the monsoon risk escalates, then another rate cut could be difficult.
However, we are assuming two cuts — one in August and one later if inflation numbers remain near or below the 4% target.”
On the recent excise duty hike on diesel and petrol, ICRA economist Aditi Nayar said the impact on inflation needs to be wat-ched for a few months.
Both manufacturing and mining output growth fell in May while consumer durables output, an indicator of urban demand, contracted 0.1% compared with 6.7% growth in yearago period. Mining grew 3.2%, lower than 5.8% in May 2018 while manufacturing, which has 77.6% weight in the index, rose 2.5% in May from 3.6% in the corresponding period last year.
There was growth in 12 of the 23 industry groups in the manufacturing sector.
Passenger vehicle sales fell 17.5% in June, the eighth consecutive drop in monthly sales. Sales have fallen in 11 of the 12 months since July 2018.
“The lead indicators of industrial growth — primary goods and intermediate goods — do not instill confidence on nearterm industrial growth recovery, which is expected to be lacklustre in the next couple of months,” said Devendra Kumar Pant, chief economist at India Ratings.
Growth will remain tepid in the near term, with some revival likely in the second half of FY20, Bhardwaj said.