For the country facing the second severe wave of the Coronavirus epidemic, Wednesday was a relief on the economic front. According to the latest data, industrial production jumped by 22.4 percent in March, while retail inflation fell to a three-month low of 4.29 percent in April.
A year earlier, industrial production registered good growth in March 2021, due to weak economic activity due to the complete shutdown of economic activity due to 'lockdown' and better performance of the manufacturing sector. This information was given in the data released on Wednesday by the National Statistics Office (NSO).
However, if we talk about the whole year, there has been a decline of 8.6 percent in industrial production in the financial year 2020-21. Earlier, in January and February 2021, industrial production based on the Index of Industrial Production (IIP) contracted by 0.9 percent and 3.4 percent respectively.
After this, industrial production registered a good growth in March due to better performance of mining, manufacturing and power sectors. Also, the comparative basis of last year was also a benefit of being weak. The lockdown was imposed in March 2020 to prevent the Kovid epidemic. This led to a fall of 18.7 percent in IIP.
There was relief in the case of inflation also. According to government figures, the rate of retail inflation has slowed to 4.29 percent in April due to a decrease in prices of vegetables, cereals, and other food and drink items. This is the lowest inflation figure in the last three months.
A month ago, retail inflation was 5.52 percent in March. While deciding monetary policy, RBI mainly looks at retail inflation. Vegetable prices declined by 14.2 percent on an annual basis. The prices of sugar and confectionery-related products declined by 5.99 percent, while the prices of cereals decreased by 2.96 percent.
In the food category, the prices of meat and fish, edible oil, fruits and pulses remain high compared to both yearly and quarterly. This reflects structural supply bottlenecks and the 'lockdown' imposed in some states to prevent the second wave of Covid-19 may worsen the situation. In addition, core inflation remains strong. The reason for this is the rise in retail fuel prices.
Suman Chaudhary, Chief Analysis Officer, Acute Ratings and Research, said, "There is a clear risk of retail price rise due to the recurrence of the Covid epidemic." But even if there is an increase on a quarterly basis, the data may remain soft on the basis of comparatives. "
Rumki Mazumdar, the economist at Deloitte India, said that there is a risk of inflation going up because of the prices of commodities and crude oil globally. There is a tendency to boom.
ICRA Limited Principal Economist Aditi Nair said the retail inflation base remained high due to supply constraints during a nationwide lockdown in April 2020, noting that consumer price index (CPI) -based inflation fell to a three-month low in April 2021.
However, this figure also seems to be higher than expected. He said that it seems that overall the restrictions imposed at the local level have a limited impact on prices during the month of April.
Nair said that as soon as the figures from the lockdown-affected months of last year come forward, inflation can once again reach the average of five percent. If this happens, the expectation of further cuts in interest rates may be ruled out. He said that at present, the economic scenario remains uncertain in view of the epidemic and in such a situation, we hope that for most of 2021, the monetary policy stance will continue to be moderate.
Regarding the IIP, Chaudhary said that despite the constraints of 'lockdown' imposed at the local level, power generation has reached the level of around 2019-20 in the financial year 2020-21. This is the result of maximum demand for electricity in the houses, which is compensating for the decrease in demand for industrial and commercial activities.
He said, "Due to the comparatively weak base on an annual basis, manufacturing is booming. But activity in exports-related sectors and especially in the field of refined petroleum products continued to pick up in March this year. The reason for this is the constraints created in April and May due to the Covid epidemic… "
According to the NSO data, the manufacturing sector, which has a 77.63 percent share in the Index of Industrial Production (IIP), registered a growth of 25.8 percent in March 2021. The mining sector produced 6.1 percent while electricity generation increased by 22.5 percent.
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