Raising concerns about cost of credit and pick up in economic activity, retail inflation soared to 23-month high of 6.07 per cent in July on higher food prices, while factory output grew at a subdued rate of 2.1 per cent in June.
The data, released by the government today, may lead to stronger calls by the industry for an interest rate cut to lower cost of capital and boost economic demand, though spike in inflation may lower the chances of any such move as the rate of price rise has exceeded RBI’s comfort zone.
Industrial production data — better than a growth rate of 1.1 per cent in previous month but sharply below 4.2 per cent a year ago — showed a poor performance of manufacturing sector as also a heavy contraction in capital goods output.
The retail inflation measured by Consumer Price Index, continued to move northwards on account of rising food prices as demand for sugar, oil & fats and spices rose ahead of the festival season.
“Revival of investment demand remains an area of concern as reflected in the steep decline of capital goods sector in the first quarter,” Ficci Secretary General A Didar Singh said.
“Initiatives taken by the Government to address the structural issues that impact manufacturing sector growth need to continue and stepped up to ensure that growth in manufacturing accelerate,” he added.
According to the data, factory output, measured in terms of the Index of Industrial Production (IIP) grew at 4.2 per cent in June, 2015.
On cumulative basis, the factory output in the April-June quarter grew by 0.6 per cent compared to 3.3 per cent growth in the year-ago period.
The manufacturing sector that constitutes over 75 per cent of the index saw a meager growth of 0.9 per cent in June compared to 5.2 per cent a year ago.
For the April-June quarter, this sector’s output showed contraction by 0.7 per cent, as against a growth of 3.7 per cent a year ago.
The capital goods output registered a steep decline of 16.5 per cent in June over a contraction of 2 per cent in last year. In April-June, the production of these goods, which are considered as barometer for investment, declined by 18 per cent compared to a growth of 2 per cent in year ago period.