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Industrial production grew 1.7% in February from a year before, having recovered from a 10-month low of 0.7% in December and inched up marginally from 1.5% in the previous month when the country had faced the Omicron onslaught. However, the growth in February was supported by a contracted base (it was -3.2% in the same month of 2021).

In signs that private consumption is yet to turn the corner, consumer durables output in February recorded its worst contraction (8.2%) since August 2020, showed the official data released on Tuesday. Even consumer non-durables witnessed the worst slide (5.5%) since May 2020. Capital goods, a proxy for investment, grew by only 1.1% in February, slower than 1.4% in the previous month. Moreover, the index of industrial production (IIP) shrank by 1.6% from the pre-pandemic (same month in FY20) level, reflecting a protracted impact of the third Covid wave and suggesting that an industrial recovery is yet to take roots.

Coupled with elevated inflation, the sluggish industrial activities will complicate the central bank’s task of curbing underlying price pressure in the economy when global commodity prices are moving up without upsetting growth dynamics. Some analysts have pencilled in a 25-basis point hike in the benchmark lending rate by the monetary policy committee in June.

While growth in manufacturing eased to 0.8% in February from 1.3% in the previous month, that of electricity and mining rose to 4.5% each from 0.9% and 2.8%, respectively, in January.

ICRA chief economist Aditi Nayar said: “A majority of high frequency indicators witnessed an improvement in their growth performance in March 2022, aside from a contraction in the output of CIL (after a gap of 11 months), and a sharp moderation in the YoY growth of non-oil merchandise exports, based on which we expect the IIP growth to accelerate to 3-5% in the just concluded month.”

Economists at India Ratings said: “As the geo-political situation has worsened after the Russia-Ukraine conflict and has the potential to turn into a major headwind for the economy, Ind-Ra believes ongoing industrial recovery will need more policy support.  Against this backdrop, Ind-Ra expects the IIP growth to remain in low single digits in the near term.”

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Author: Howard Caldwell