Festive season boosts economy

but concerns remain

On Thursday, government data showed early signs of recovery of the
economy. The retail inflation for the month of September stood at 3.28 per
cent, fairly lower than what was widely expected. Contrary to experts'
predictions of inflation shooting up, it remained flat to the numbers for
August which were revised to 3.28 per cent from 3.36 per cent.

But, the bigger cheer came in the form of factory output data. The IIP or
Index of Industrial Production for August shot up to 4.3 per cent from (-) 1.2
per cent in the month of July. Factory output had seen negative growth in
the month of June and July, owing to teething problems after GST rollout.
The August IIP figures stand at a nine-month high, so effectively the
factories are performing at their best since demonetisation. There is further
reason for reposing faith in prudence of the recovery as core areas like
manufacturing, mining and electricity have been the major contributors with
output of these sectors growing 3.3 per cent, 1.6 per cent and 6.2 per cent
respectively in the April - August period.

The growth is largely owed to restocking of goods by retailers in the festive

season which has coincided with the traders getting over the initial hiccups
related to GST. Economists, thus are putting in a word of caution. "Three
successive impressive growth rates would indicate a real recovery. Or else
it would be more a case of the restocking impact of the GST effect," said
Madan Sabnavis, chief economist at Care Ratings.

On a similar note, analysts are also sceptical of the inflation rates shooting
up in the near future. "Rising energy prices and implementation of farm
loan waivers aggravates the inflationary pressure. All this will basically
impart upside risk to the baseline inflation trajectory," said Hitesh Jain,
Associate Vice President - Research, IIFL Wealth management. A
northward inflation would also mean that the Reserve Bank of India (RBI)
will not be too keen in cutting the policy rates. "There is no room or scope
for further easing rates for at least 3-4 months. RBI may take a call in
March since it clearly sees inflation scaling higher," Jain added.

Both India Inc. and the government have been pushing RBI to reduce the
key interest rates, in order to encourage private investment, which by
Finance Minister's own admission is in a bad shape. With the RBI
predicting the growth rate to improve as early as in the second quarter of
the financial year, it remains to be seen if the latest government data is a
blip or the beginning of an uptrend.