Care Ratings have suggested that the IIP growth for April at 3.4% had an impressive start after a negative growth in March. The projection was 1.2%. However, it is too early to extrapolate the same for the year as the base effect would be playing a role till October or so when the rates were high last year. The good part is that growth is spread well across mining, manufacturing and electricity.
Both capital goods and consumer goods have witnessed reasonable growth of 2.5% and 2.4% (durable) and 5.2% (non-durable). But caution must be exercised as this cannot be interpreted as a revival in consumption spending as the auto data released so far is not encouraging.
While growth in the region of 4.5-5% can be expected for the year, it all depends on state of monsoons, kharif harvest, pick up in investment, government spending and household consumption in second half of the year.
Looking at CPI inflation, it came in higher than expected at 3.1%. The delay in monsoon and drought conditions in Maharashtra is important as food inflation has started to increase and can become sharp in case of specific crop failures especially pulses and oilseeds. Also horticulture becomes vulnerable to monsoon effects.
The trend of food inflation going up core inflation down continue to trend in the coming months. Within the core group high inflation numbers have been witnessed in health, housing, education and recreation. CARE Ratings expects CPI inflation to range around 4% for the year dependent largely on oil prices and monsoon effects. Interestingly the range of CPI inflation is between 0.22% in Bihar and 5.4% in Kerala and Karnataka. Therefore, the headline number masks the wide variation as states like J & K, Uttarkhand, Delhi, MP, Assam, Karnataka have inflation of above 4%.
