A Pleasant surprise

Industrial output growth surprisingly rose to a 13-month high of 5.7% in November while retail inflation slowed to a 25-month low in December led by a sharp decline in vegetable prices, triggering hopes of a cut in interest rates by the Reserve Bank of India when it reviews monetary policy in February .

The November industrial output data should bring cheer to policymakers as the numbers  showed the demonetisation drive did not make any significant impact on industrial growth. The government's surprise decision to scrap Rs.500 and Rs.1,000 notes on November 8 has hurt several sectors and dented demand. The industrial output data has remained volatile and economists have often called for a revision of the data to better reflect the reality and minimise the sharp volatility .

Industrial output grew an annual 5.7% in November compared to a decline of 3.4% in the year-ago period. The sector had declined 1.8% in October.

Growth in November was helped by the favourable base effect and the performance of manufacturing, capital goods and consumer durables sectors.

Between April and November, industrial output growth rose 0.4% compared to 3.8% expansion in the year ago period, reflecting the sluggishness still persisting in the sector. Economists said it was too early to predict whether the November data had shrugged off the impact of demonetisation.

The manufacturing sector rose 5.5% in November compared to a decline of 4.6% in November 2015, while mining rose an annual 3.9% compared to 1.7% in the year earlier period. The capital goods sector, which is seen as a key gauge of industrial activity, rose 15% in November compared to a decline of 24.4% in November 2015. The capital goods sector data has remained volatile in the past and economists have said it is difficult to derive a trend. The consumer durables sector rose 9.8% compared to a growth of 12.2%.The electricity sector grew 8.9% in November compared to 0.7% expansion in November 2015.

Retail inflation slowed to a 25-month low of 3.4% in December. Inflation as measured by the consumer price index was 3.6% in November. Food inflation slowed to 1.4% in December compared to 2% in the previous month, largely on the back of a 14.6% decline in vegetable prices and 1.6% contraction in prices of pulses. Sugar and confectionary remained a pressure point rising an annual 21% in December.

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