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With people just getting back into the groove after the long Diwali holidays last week, today evenings IIP and CPI number were not too bad.

Retail inflation or CPI for October came in at 3.31% v/s 3.77% (MoM) and IIP for Sept came in at 4.5% v/s 4.3% (MoM). Manufacturing growth was unchanged while capital good showed a very modest rise from 5% to 5.8%.

In IIP, seventeen out of the twenty three industry groups in the manufacturing sector have shown positive growth during the month of September 2018 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of furniture’ has shown the highest positive growth of 32.8% followed by 20.9% in ‘Manufacture of wearing apparel’ and 20.6% in ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials’. On the other hand, the industry group ‘Printing and reproduction of recorded media’ have shown the highest negative growth of (-) 12.9% followed by (-) 10.7% in ‘Other manufacturing’ and (-) 7.3% in ‘Manufacture of tobacco products’.

Internals of inflation:

Food inflation – (-0.86%) v/s (-0.51%)

Vegetables (-8.06%) v/s (-4.15%)

Pulses (-10.28%) v/s (-8.58%)

Sugar (-7.64%) v/s (-6.42%)

Fuel & light 8.55% v/s 8.47%

Cereals 2.57% v/s 3.12%

What is worrisome is the severe food disinflation but then again, because it is disinflation and not deflation, it should not cause sleepless nights. Disinflation is the fall in the rate of inflation while deflation is a more serious problem – its an overall decrease in prices. But disinflation over a sustained period of time might not be a good scene and it signifies slowing growth and rising unemployment. Remember - disinflation is positive when inflation is in comfortable zone. However, as if the overall CPI too inches towards zero, the markets will become increasingly uncomfortable with disinflation since it raises the specter of deflation. For now, despite what the doomsday predictors say, this is not a bad thing, yet.

Many say that this will now make the Govt uncomfortable as negative food prices will put pressure for policy action to save the farmers. But please loan waiver is not the solution to all farmer issues. This fall in food prices is really nothing extraordinary because there are other food items where prices have not fallen, with some showing a rise too. So instead of concentrating only on their loans, it would be better to stop planting crops blindly only because it is a cash crop or because prices are on the rise. It is probably high time lessons are given about helping farmers understand cycles better and plant accordingly. Yes, there are systemic errors too, the biggest one being the MSP. Farmers need to be given better storage so that over or under supply is avoided and more than anything else, ensure that some of the traders who have virtually formed a cartel, do not push the auction price lower. Also farmers ability to supply beyond his own mandi also needs to go up; with the world opening up on their mobile phones, maybe that is where they need to focus?

This year, 31% of the districts in India are struck by drought according to IMD but many states are yet to declare drought, leaving the already agonised farmer distressed. 255 districts of the country recorded deficient (-59 to -20 per cent) or scanty (-99 to -60) rainfall. Some states, including Maharashtra, Karnataka, Odisha, Andhra Pradesh, Bihar and Jharkhand declared drought.  But other deficient states like Gujarat, Assam, UP and West Bengal are yet to declare a drought. Why this reluctance? According to a new manual on drought management issued by the Union Ministry  of Agriculture in December 2016, the Centre will only provide funds to state governments in case of "Severe" drought, not "mild".

We bring this issue of drought here because it is going to affect agriculture production and in turn the inflation when supply is deficient. So the disinflation prices we are seeing today are not here to stay; it’s only a matter of time before food prices too start going up.

Thus with a benign growth and lower inflation, what does the RBI do? Actually, nothing as of now; stay put.

And the markets will sway more to election winds that economic data. With voting commencing in Jharkhand today, the assembly election outcome is what will decide the mood.

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