DNA Money Edit: IIP drop underscores need to step up govt spending

As retail inflation inches up to 3.81% in March, the highest in 5 months, the increase in non-food components may be a bit annoying. Fuel and light has reported a growth of 5.6%, and transport 6%, creating a reason for worry. The food component, at 2.5% growth, has brought the overall inflation down. Vegetable prices are in negative territory for the seventh straight month while pulse prices too have shown declining momentum. Last week, the RBI, in its monetary policy review, projected retail inflation to increase to 5% in the second half of the current fiscal citing risks of El Nino impacting the monsoon and one-off effects of the GST. Care Ratings expected the retail inflation to range between 4.5-5% for 2017-18 assuming a normal monsoon. But if the predictions of Skymet Weather turn right and we get below-normal rains in 2017, the economy growth may be impacted.

Another concern is the falling IIP growth. The IIP growth for February was pegged at 1.2%. Cumulative growth is just 0.4% as against 2.6% last year. 15 of the 22 industries witnessed negative growth. A decline in consumer goods production – both durable and non-durables (in the negative zone) – seems to have driven the IIP figure into the negative. Clearly, India has not witnessed any significant consumption in February. Let us hope the push by the government on infrastructure and railway sectors may push up IIP numbers in coming months.