India’s industrial production grew 29.3% year-on-year in May, helped by base effects that magnified growth while masking the sequential deterioration in the month that faced the brunt of the second wave.
Simultaneously released data showed retail inflation slowed marginally to 6.27% in June from 6.3% in May but stayed outside the RBI’s 2-6% target band for the second straight month.
The index of industrial production (IIP) was 13.8% lower in May from the same month in 2019 and 8% down from April 2021, underscoring the impact of the second wave. Industrial output had contracted 33.4% in May 2020, which magnified the growth this year.
Economists expect the RBI to prioritise growth. “We continue to expect the MPC to retain its current policy guidance in the August policy in favour of growth,” said Kotak Mahindra Bank senior economist Upasna Bhardwaj.
The next meeting of RBI’s monetary policy committee is scheduled for August 4-6.
India Ratings chief economist expects the central bank to persist with its accommodative monetary policy stance at least until the end of 2021.
Manufacturing grew 34.5% and mining 23.3% while electricity generation was up 7.5% in May from a year ago. All subsectors reported higher growth, led by consumer durables, an indicator of urban demand that rose 98.2%.
Consumer non-durables grew 0.8%, while capital goods output, an indicator of investment, was up 85.3% from the last year.
“It (IIP growth) has been driven by base effects. This will get diluted over months, especially July,” said Madan Sabnavis, chief economist, CARE Ratings.
Most high-frequency indicators show the economy picked up pace in June, except for a few, including the manufacturing purchasing managers’ index, which pointed to a contraction in the month after an 11-month expansion stretch.