Credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has said that India’s industrial output will not return to a sustained and high growth path as long as excess capacity in the manufacturing sector remains and private investment does not revive.
Industrial output grew 2.1 percent in June and 1.1 percent in May. Even if the positive growth in the index of industrial production (IIP) in two consecutive months is encouraging, rating agency believes that it is still too early to expect an improvement and stability in industrial growth. Besides, retail and wholesale inflation for July came in at 6.07 percent and 3.55 percent respectively and manufacturing output increased to 0.9 percent year-on-year in June 2016 from 0.6 percent in the previous month.
The report stated that a marginal increase in manufacturing does not generate confidence that the downtrend in manufacturing has been reversed, the capacity utilization in manufacturing has been hovering in the range of 70-75 percent now for nearly five years. Further it said that an analysis of food inflation data over the past 6-7 years suggests that nothing has managed to tame food inflation.
Ind-Ra’s assessment said that food inflation despite a favorable monsoon could surprise on the upside, especially with regard to kitchen items like potato, tomato, onion, milk, egg, pulses - as has been the case in the past. It said that the goalpost shifts each time food inflation surprises on the upside. It has become routine to put the blame on the failure of monsoon, unseasonal rainfall, the futures market in agricultural commodities and sometimes on hoarding and black-marketing. But the normal monsoon so far has raised expectations that food inflation will moderate in coming months and cool the overall inflation.