A sharp decline in the pace of industrial production in January is likely to pull down the gross domestic product (GDP) growth during the fourth quarter of the ongoing financial year, raising the clamour for a rate cut at a time when retail inflation has inched up.

Owing to a slowdown in the manufacturing sector, especially capital and consumer goods, factory output, as measured by the Index of Industrial Production (IIP), grew at 1.7% in January, down from a high of 7.5% a year ago, showed data released by the Central Statistics Office (CSO) on Tuesday.

Manufacturing sector growth slowed to 1.3% in January from 8.7% a year ago. There was also a slump in the power generation segment as the expansion was almost flat at 0.8% compared to 7.6 % in the year-ago month.

Retail inflation jumped to a four-month high of 2.57% in February due to costlier food articles. In October 2018, it stood at 3.38%, data showed. On a monthly basis, the consumer food price index moved up by 0.15% in February against January 2019.

Since the Reserve Bank of India (RBI) factors in retail inflation while deciding its monetary policy, economists hint at another rate cut in the upcoming RBI monetary policy meeting.

B Prasanna, head - Global Markets Group, ICICI Bank, said, "Industrial momentum is likely to stay flat in Q4FY19, adding no incremental fillip to growth. We expect GDP growth for Q4FY19 to show sequential weakening to 6.4–6.5% (year on year). On monetary policy, we expect another rate cut in the April meeting and subsequent action would be data dependent."

RBI's next monetary policy statement is due on April 4.

"There clearly is a case and space for one more rate cut of 25 basis points by RBI in April to support growth. Core inflation numbers, however, remain sticky at above 5% and prices for most services are rising at above 6%, reflecting a pickup in demand conditions and pricing power, particularly in the urban economy", according to RBL Bank economist Rajni Thakur.

Protein-rich items such as meat and fish and eggs witnessed a quick rise in prices at 5.92% and 0.86%, respectively in February. Prices of cereal and products went up at 1.32%.

Meanwhile, the consumer price index-based inflation for January was revised down to a 19-month low of 1.97% from the earlier estimate of 2.05%.

Retail inflation stood at 4.44% in February 2018. CSO also revised upwards the growth in IIP for December 2018 to 2.6% from the earlier estimate of 2.4%.

Economic growth had slowed to a five-quarter low of 6.6% in October-December, and the government estimate for the financial year ending this month has been revised down to a five-year low of 7% from 7.2%, according to CSO data.

WHIR GETS FAINT

• 1.3% – Manufacturing sector growth slowed to in January  
• 7.5% – Industrial production had grown in January last year