NEW DELHI: The new government, which may soon have to deal with a potentially bad monsoon, had good news coming its way with industrial growth rebounding to a 13-month high in April and consumer inflation easing in May.

Industrial production rose 3.4% in April, the highest since March 2013 and reversing two months of contraction, according to data released by India’s statistics office on Thursday.
Inflation, measured by the Consumer Price Index (CPI), eased to 8.28% in May, lower than what economists had anticipated, from 8.59% in April. The IIP data is the latest manifestation of green shoots of recovery for the Indian economy which has grown below 5% for two years in a row.

Before Thursday’s data, a 12.4% rise in exports in May, an uptick in the Purchasing Managers Index (PMI), which is an indicator of manufacturing activity, and a rise in car sales in May after 10 months of decline had been touted as evidence to indicate that better days could lie ahead. The new government faces the difficult task of reviving growth without the option of either reverting to a fiscal or monetary stimulus.

A fiscal stimulus is ruled out because of the need to cut the fiscal deficit while RBI is unlikely to cut rates till it is convinced that inflation is headed downwards. Further in fiscal 2014-15, farm output is likely to take a hit if the monsoon is weak. The Reserve Bank of India (RBI) left interest rates unchanged in its June 3 policy review, the first under the new government.

“There are early indications that there is a turnaround in the capex cycle. As manufacturing picks up, you will see the urban demand roaring back,” said Pronab Sen, chairman, National Statistical Commission in an upbeat assessment. Though it will not impact monetary policy immediately, the numbers are likely to enthuse stock markets that were looking for some trigger till the budget.

“Markets are very positive at the moment and we are hopeful that the trend will sustain,” said Jagannathan Thunuguntla, Head Research, SMC Global Securities. The BSE Sensex rose 102 points on Thursday to 25,576. The IIP and CPI numbers came after market hours. Both core inflation, a measure of demand, and food inflation, a big worry because of the possibility of a deficient monsoon, declined in May.

Core inflation fell to 7.72% in May from 7.8% in April while food inflation dropped from 9.83% to 9.56% over this period despite concerns that fear of deficient rains will drive up food prices. “Notwithstanding the recent easing in food inflation, stable core inflation and a favourable base effect in the coming months, a cautious monetary policy stance is warranted in our view, as monsoon-related concerns have started to crystallise with a delayed onset and low precipitation so far,” said Aditi Nayar, senior economist, ICRA.

Indian meteorological department has estimated rainfall at 93% of the average. The industrial production numbers benefited from a 11.9% rise in electricity generation, which bodes well for the manufacturing sector that has been battling power shortages.

Mining output was up 1.2% from a year ago in April while manufacturing rose 2.6%. Only eight out of 22 manufacturing subgroups reported negative growth in April, indicating a broad-based pickup in activity.

Capital goods production was up 15.7%, suggesting a revival in investment activity, though the uptick is from a weak base of 0.3% contraction last year.

A contraction in production of consumer goods took some sheen off the numbers. Production of consumer goods declined 5.1% in April from a year ago, suggesting sluggish consumer sentiment. Production of consumer durables, a measure of discretionary spending, fell 7.6% while that of consumer non-durables, FMCG goods, dropped 3.3%.

“The disconnect between the consumer goods and capital goods data is perplexing. One needs to figure out how it must be interpreted?” said DK Joshi, chief economist, Crisil.

“It is hoped that the forthcoming Union Budget would announce a slew of growth propelling policy measures which would debottleneck the economy and reignite the investment cycle,” CII said in a statement welcoming the numbers.