ECONOMY VERY DISAPPOINTING

In a clear signal that Indian economy is not out of woods, the key economic data released today revealed contraction in industrial production and exports coupled with near double digit retail inflation. While the Index of Industrial Production (IIP) contracted by 1.6 per cent in May, the lowest factory output in 11 months, the trade figures suggest 4.6 per cent decline in exports in June. The retail inflation inched up to 9.87 per cent in June mainly due to rise in vegetable and fruit prices. These key data will have a bearing on first quarterly monetary policy review to be unveiled by the Reserve Bank on July 30. The central bank is faced with a tough task of maintaining a balance between pushing growth and containing inflation. However, the silver lining is the narrowing of the trade deficit mainly on account of steep decline in import of gold and other precious items. The trade data showed that the trade gap narrowed to USD 12.2 billion in June as against 20.1 billion in the previous month.
Commenting on the data, Chairman of the Prime Minister's Economic Advisory Council (PMEAC) C Rangarajan said: "The impact of various measures taken in the last six-seven months will be felt in the second half of the year...therefore, going ahead, I think the situation will improve". On possibility of RBI cutting interest rate to boost growth, he said there is pressure on rupee and lot will depend upon inflation. The WPI based inflation figures will be released next week. Since the government released the IIP and retail inflation figures at 5.30 pm, the impact of the data could not be gauged in either the stock markets or the forex market. This is the first time that the government released the IIP and inflation data after market hours.
The BSE Sensex had surged by 282.41 points to close at 19,958.47, the highest level since May 30. The rupee too appreciated by 11 paise to close at a two-week high of 59.56 against the dollar. As per the IIP data, the May factory output contracted mainly on account of poor show by the manufacturing and mining sectors. The IIP was 1.9 per cent in previous month and 2.5 per cent in May last year. During April-May the factory output measured in terms of IIP worked out to be a meagre 0.1 per cent, down from 0.6 per cent in the corresponding period last fiscal. Manufacturing sector, which constitutes over 75 per cent of the index, contracted by 2 per cent in May as against a growth of 2.6 per cent in the year-ago month. The mining sector output too declined by 5.7 per cent in May, compared to a dip in the production by 0.7 per cent in the year-ago period. Overall, 11 of the 22 industry groups in manufacturing sector have shown a positive growth in May.
The trade data released by the Commerce Ministry shows India's exports contracted by 4.6 per cent, for the second consecutive month, to USD 23.79 billion in June 2013 compared to those registered during the year-ago period.
Imports too declined marginally by 0.37 per cent to USD 36 billion in the month, leading to a trade deficit of USD 12.2 billion. In May, the trade gap stood at USD 20.1 billion. The main reason for decline in imports and trade deficit was dip in gold and silver imports, Director General of Foreign Trade (DGFT) Anup Pujari told reporters here. Meanwhile, the retail inflation inched up to 9.87 per cent in June, from 9.31 per cent in the previous month, on costlier vegetables and food items. The spike in consumer price index-based inflation came after three consecutive months of decline in the price rise. The steepest rise was witnessed in vegetables prices which jumped 14.55 per cent in the month over the year-ago period. Prices of fruits too witnessed a significant rise.