24.05.2016, 08:56
Guidance: Monthly Economic Report - April 2016
OREANDA-NEWS. Report by British High Commission New Delhi on latest economic developments - April 2016.
Growth in Foreign Direct Investment and Industry
Foreign direct investment (FDI) touched a new peak clocking £35.8bn — the highest ever FDI inflow in a fiscal, during AprilFebruary FY16. FDI rose nearly 15% over the previous year. A year before, foreign investment stood at £30.7bn. The government had brought in FDI-related reforms and liberalisation touching upon 15 major sectors of the economy by putting more FDI proposals in the automatic route in November 2015.
India received FDI equity worth £20.4bn during April-December period in FY16. Computer software and hardware sectors received £3.6bn while services sector accounted for £2.9bn. Automobile and telecom sectors received £1.1bn and £740m respectively. Region-wise, the National Capital Territory (comprising Delhi, part of Uttar Pradesh and Haryana) received £7.3bn while Mumbai got £3.6bn.
Following the trend with the positive FDI inflow, Industrial production grew at 2% in February after remaining negative for a quarter reflecting some improvement in the economy. Although there is an uptick in the industrial output in February, the manufacturing sector, which constitutes over 75% of the index, crawled at 0.7% as against a growth of 5.1% last year. The index had registered a growth of 4.8% last year.
The uptick in industrial output was mainly on account of improvement in mining, power and consumer durables. During April-February, industrial output grew at 2.6% compared with a growth of 2.8% in the year-ago period. Mining logged a growth of 5% as against a growth of 1.6% in same month a year ago. Power generation accelerated, growing 9.6% compared with 5.9% growth a year earlier. The output of consumer durable goods grew 9.7% in February as against a contraction of 3.8% in the same month a year ago. However, capital goods, a barometer for investment flow, contracted 9.8% in February compared with a growth of 8.3% in the year-ago period. While this is encouraging, the manufacturing sector remains a concern and the ongoing trend of IIP appears to be volatile.
MODERATION IN RETAIL INFLATION
After two straight years of deficient rains, the weather office has forecast above-normal monsoon showers this year, suggesting that food inflation is unlikely to shoot up in the current fiscal. Retail inflation, measured by the Consumer Price Index (CPI), eased to a six-month low to 4.83% (y/y) in March from 5.26% in February. CPI was at 5.25% last year. It is trending below the Reserve Bank of India’s (RBI) target of 5% by the end of the current financial year. The decline in retail inflation can be largely attributed to a reduction in food prices in March. Food inflation, eased to 5.21% in March, from 5.30% in February. The food index, which accounts for a large share in CPI, had edged up to 6.14% in March 2015.
Within the food index, pulses registered the sharpest rise - it was the only category that saw double-digit inflation. Within the non-food category, February inflation moderated to 3.38% in the fuel and light category, from 4.59% in March. A similar trend was observed in the transport and communicationcategories - 0.91% in March from 2.39% in February. Inflation eased in rural and urban areas. In towns, CPI-based inflation declined to 3.95% in March from 4.3% in February. The corresponding figures for rural areas were 5.7% and 6.05%, respectively, for March and February. Though the retail inflation has eased, food price fluctuations remain and maintain upward inflationary pressures.
Growth in Foreign Direct Investment and Industry
Foreign direct investment (FDI) touched a new peak clocking £35.8bn — the highest ever FDI inflow in a fiscal, during AprilFebruary FY16. FDI rose nearly 15% over the previous year. A year before, foreign investment stood at £30.7bn. The government had brought in FDI-related reforms and liberalisation touching upon 15 major sectors of the economy by putting more FDI proposals in the automatic route in November 2015.
India received FDI equity worth £20.4bn during April-December period in FY16. Computer software and hardware sectors received £3.6bn while services sector accounted for £2.9bn. Automobile and telecom sectors received £1.1bn and £740m respectively. Region-wise, the National Capital Territory (comprising Delhi, part of Uttar Pradesh and Haryana) received £7.3bn while Mumbai got £3.6bn.
Following the trend with the positive FDI inflow, Industrial production grew at 2% in February after remaining negative for a quarter reflecting some improvement in the economy. Although there is an uptick in the industrial output in February, the manufacturing sector, which constitutes over 75% of the index, crawled at 0.7% as against a growth of 5.1% last year. The index had registered a growth of 4.8% last year.
The uptick in industrial output was mainly on account of improvement in mining, power and consumer durables. During April-February, industrial output grew at 2.6% compared with a growth of 2.8% in the year-ago period. Mining logged a growth of 5% as against a growth of 1.6% in same month a year ago. Power generation accelerated, growing 9.6% compared with 5.9% growth a year earlier. The output of consumer durable goods grew 9.7% in February as against a contraction of 3.8% in the same month a year ago. However, capital goods, a barometer for investment flow, contracted 9.8% in February compared with a growth of 8.3% in the year-ago period. While this is encouraging, the manufacturing sector remains a concern and the ongoing trend of IIP appears to be volatile.
MODERATION IN RETAIL INFLATION
After two straight years of deficient rains, the weather office has forecast above-normal monsoon showers this year, suggesting that food inflation is unlikely to shoot up in the current fiscal. Retail inflation, measured by the Consumer Price Index (CPI), eased to a six-month low to 4.83% (y/y) in March from 5.26% in February. CPI was at 5.25% last year. It is trending below the Reserve Bank of India’s (RBI) target of 5% by the end of the current financial year. The decline in retail inflation can be largely attributed to a reduction in food prices in March. Food inflation, eased to 5.21% in March, from 5.30% in February. The food index, which accounts for a large share in CPI, had edged up to 6.14% in March 2015.
Within the food index, pulses registered the sharpest rise - it was the only category that saw double-digit inflation. Within the non-food category, February inflation moderated to 3.38% in the fuel and light category, from 4.59% in March. A similar trend was observed in the transport and communicationcategories - 0.91% in March from 2.39% in February. Inflation eased in rural and urban areas. In towns, CPI-based inflation declined to 3.95% in March from 4.3% in February. The corresponding figures for rural areas were 5.7% and 6.05%, respectively, for March and February. Though the retail inflation has eased, food price fluctuations remain and maintain upward inflationary pressures.
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