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5 things to note from Indian Economic Data
The year 2016 is halfway over and there has been a lot going on in the past six months. The RBI governor Raghuram Rajan has decided to step down from his position at the end of his term in September. Stock markets look positive and the inflation rate is steady. Let’s take a look at the five things to note from the Indian economic data:
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Increase in IIP:
Government data released on the 12th of July shows that the Index of Industrial Production (IIP) rose by 1.2% in May as compared to last year. This is an unexpected positive recovery in May after the dip in charts for the month of April. Despite being only a small change, the upward movement has been viewed positively by economists and financial analysts. Our analyst says that investment activity would revive in the coming months only if demand and consumption improved in the market. And with good monsoons predicted for the next month, economists hope that demand in rural areas will increase rapidly.
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Impact of Monsoons:
Agriculture contributes to around 16% to India’s GDP. Yet, more than 50% of the farmers still depend on rainfall for meeting their agricultural needs. This highlights the dependency of rural economy on the monsoons. This year, the meteorological department has revealed that the monsoon rain is expected to be around 106% of the long period average. This comes as positive news for the economy as a whole.
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Vegetable prices drive CPI inflation:
The Consumer Price Index (CPI) inflation remained firm at 5.77% for the month of June. This has been due to the surge in vegetable prices and the introduction of Krishi Kalyan cess of 0.5% since June. With the promise of a good monsoon this year, food prices are expected to decrease in the coming months. The near-term inflation outlook has been clouded due to seasonal factors but the overall inflation scenario is expected to improve in the coming year.
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Continued Repo Rate Cut:
The Reserve Bank of India is expected to cut repo rates by 25bps by second half of CY2016. This will come as good news for borrowers since they stand to gain a lot if the banks were to pass on the full benefit of the cut to the borrowers. However, there could be further policy review once the new RBI regime takes over soon after the current governor Raghuram Rajan steps down.
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Increase in consumption:
The remainder of CY2016 is expected to witness an improvement in economic growth as well as other aspects like investments, consumer demand, and inflation. Fall in food prices paves the way for an increase in the consumption. Industries like fertilizers, agro machinery, and food processing are also likely to receive a huge boost due to seasonal factors this year. This is also related to the progress made by the monsoon. It is expected that rural consumption would improve in tandem with an increase in the farmer income.
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1.62%
The wholesale price inflation doubled to 1.62% in June 2016 against 0.76% in May 2016, according to the government data. While RBI tracks the retail inflation, wholesale prices have grown faster-than-expected. This could influence retail inflation and may delay the process of bringing down repo rates quickly.
