Tuesday, 17 November 2015

WPI Negative, Slow Industrial Output Raises Concerns


Wholesale Price Index (WPI) for the month of October, 2015 fell to (-)3.81% as compared to (-)4.54% in the previous month. Inflation has stayed negative consecutively for the past 12 months. The WPI downward trend was mainly contributed due to falling crude prices and weakness in Global Commodity prices. The food inflation remained in check despite steep price rise seen in Pulses and Onions as it grew by 2.44% as compared to 0.69% in the previous month. This is the leanest period observed since the WPI Index was launched in 2005. The fuel and power segment, inflation declined by (-)16.32% as compared to (-)17.71% in the previous month. Wholesale Inflation takes into account the prices paid by the manufacturers on the goods imported and used as inputs. The main reason behind the WPI remaining down is due to Food Inflation remaining in check and the slide in Crude prices in the International Market. On month to month basis Primary articles and Manufactured products remained unchanged. The index provides Primary Articles with 20.11% weightage, 64.97% for manufactured products and power & fuel with 14.91%.
The Inflation figure for August has been revised to (-)5.06% from provisional estimate of (-)4.95%.


Consumer Price Index (CPI) rose consecutively for the 3rd month to 5% in the month of October, 2015 as compared to 4.4% in the previous month. The food inflation rose to 5.25% from 3.88% in the previous month. The rise is chiefly attributed to the rise in demand during the festive season and steep price rise witnessed for pulses and onions.
RBI is on course with its Short and Mid-term Inflation target. With CPI in check, which is contributed due to higher weightage being given to retail inflation, which is more logical in my opinion as reflects the true impact of inflation on Common People. The stability in CPI will lead to strengthening of the economy and would call for changes in the monetary policy.


Index of Industrial Production (IIP) continued to witnessed slow growth, as it grew by 3.6% in September,2015 as compared to 6.2% (revised) in August,2015.
The fall is mainly contributed by the growth in the Manufacturing Sector, which grew at 2.7%, whereas Mining sector recorded a growth of 3%, while the Consumer Non Durables sector contracted, as it fell by 4.6%. Capital Goods Sector was another sector which recorded a sedate growth figure of 10.5%.
The contraction of Industrial Output should be closely monitored. Industrial growth is mandatory to generate jobs for individuals, however the turbulent European Crisis and Chinese downturn is a cause of concern and one needs to be cautious going forward. The Indian Economy however seems to be on the right track and holds good for the future.
As I had mentioned previously, growth in Manufacturing Sector is the only way forward for the economy. Thus the rise in the core sectors along with few others will definitely help the Economy to move forward. Manufacturing Output also constitutes 75% of IIP data.


RBI has set a target of maintaining CPI below 6% till January,2016 and seems to be on course.
RBI wanted to ease Consumer Inflation to 4% very soon and is well on course.
The continuing deflationary trend also does not augur too well for the economy as it indicates weak demand, which in turn slows the production thereby leading to poor wages and lack of job creation.
Exports have been decline for quite some time now which will impact India’s earnings. The fall is mainly contributed to poor global demand and softening of crude prices. Global Economic slowdown has not helped India’s cause either.
Global Sentiments are pretty reserved at this point of time with China struggling and Greece fighting an economic battle of its own. The major challenge at this point of time is to ensure economic stability and safeguard the Interests of developed and developing economies of the world.

India is emerging as the most preferred destination for the Investors and promises to bring in more and more investments which augurs well for the economy as well the as the population.


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