Industrial production plunges, Startup India action plan announced

The week of January 16, 2016 was a disappointing data week for India as two major economic indicators: the Index of Industrial Production (IIP) and the Consumer Price Index (CPI) showed worrisome trends. IIP declined by 3.2% on a year on year (yoy) basis in November 2015, correcting the sharp spurt in growth witnessed in the month before. A number of factors, including, lesser number of working days during the festive month as well as floods in Tamil Nadu contributed to the decline in IIP numbers. CPI based inflation, on the other hand, inched up in December 2015 to 5.6% yoy, rising for the fifth straight month. Even though it is still in the RBI comfort range, the consistent rise needs to be watched, particularly next month, as the base becomes stronger. WPI on the other hand remained in deflation in December, making it an entire year of decline in index compared to the previous year. This trend, could, however reverse from next month as the base wears off.

Other activity indicators showed a somewhat mixed picture. RBI’s Industrial Outlook survey revealed that manufacturing companies are more optimistic both about current conditions as well as the next quarter in comparison with their responses last quarter. However, there is a decline in optimism both about the present and the future compared to one year ago. Indian companies’ foreign borrowings increased to a five month high in November 2015, but are still less than that one year ago on both a standalone and cumulative basis for 2015-16 so far. A small lag was maintained in rabi crop sowing from the last year, on the agriculture front.

The Prime Minister, Narendra Modi, launched the Start-up India action plan, which lists a set of 18 specific initiatives being undertaken by the government to encourage the start-up movement in India. The objective of the initiative is to spread the start-up movement across sectors and across regions in India, including Tier 2 and Tier 3 cities through support in regulations, innovation and financing.

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