Hopes of an early rate cut were rekindled on Thursday as retail inflation fell back within the central bank’s tolerance band in November, while factory output hit a three month high in October, in good news for the economy that slowed in the second quarter.

Retail inflation based on the consumer price index (CPI) fell to a three month low of 5.48% in November from the 14month high of 6.21% in October, statistics ministry data showed. 

Inflation fell as vegetable prices cooled due to rising supplies, while factory output growth touched 3.5% thanks to higher production of consumer durables and garments.

“The favourable progress of rabi sowing becomes critical for retail inflation, given that food inflation has been the leading driver in recent times.

This, along with the subdued trend in inflation of the majority of the items, is expected to help the headline retail inflation head closer to 4% from end FY25,” he added.

The decline in inflation comes at a time when senior government functionaries including finance minister Nirmala Sitharaman and commerce minister Piyush Goyal have called for lower interest rates. On Wednesday, Sitharaman said inflation was a pressing global challenge that transcends borders and defies individual nations’ efforts, calling for collective action to tackle the issue effectively.

Last week, RBI’s Monetary Policy Committee (MPC) kept the key repo rate unchanged at 6.5% for the eleventh consecutive time, keeping interest rates unchanged for 22 months. RBI aims to keep inflation within a target band of 26%. On Friday, RBI said it expects 4.8% CPI inflation for FY25, with 5.7% and 4.5% likely in the third and fourth quarters.

The fall in retail inflation in November was aided by a slower rise in the prices of food items such as cereals, eggs, milk products, fruits, vegetables, and pulses during the month compared to October.

However, prices of meat, oil, and fats rose. Food inflation, which accounts for nearly 40% of the overall consumer price basket, rose 9.04% year on year in November, compared with 10.87% in October.

Meanwhile, core inflation, which excludes food and fuel prices, stood at 3.9% in November 2024, up from 4% the previous month.

Yield on the benchmark 10year government bond closed at 6.845% on Thursday, marginally up from 6.71% on Wednesday, before the release of inflation data.

Meanwhile, industrial output rose to a three month high of 3.5% year on year in October, up from 3.1% in September, driven by a boost in consumer durables and garment manufacturing during the festival season, matching the 3.5% forecast in a Reuters poll.

During October, manufacturing output grew by 4.1% year on year, up from 3.9% in September, while mining and electricity output reported annual growth of 0.9% and 2%, compared to 0.2% and 0.5%, respectively, in September.

Consumer durables output, including household appliances and vehicles, grew 5.9% in October, down from 6.5% in the previous month.

Capital goods output increased 3.1% year on year in October, compared to 3.6% in September. Output for primary goods increased 2.6% year on year in October, up from 1.8% in September.

“The data underscores a fragile industrial landscape, where isolated gains in manufacturing mask broader weaknesses. While the breadth of growth across 18 of 23 manufacturing sub sectors is encouraging, the subdued performance in core sectors like mining and electricity points to inefficiencies,”.

The government plans to raise 25,000 or 26,000 crore through sovereign green bonds in the next financial year, marking a 25% increase from its 20,000 crore target for FY25, to boost financing for climate friendly projects,.

The move aligns with the Union government’s objective of leveraging green bonds more extensively to fund sustainable infrastructure projects, with an announcement likely in the upcoming budget.

“The borrowings made through green bond instruments during the next fiscal (FY26) are likely to be about 25-30% higher than the previous fiscal as there is a demand for sustainable bonds,” .

“India’s inclusion in various bond indices like the JPMorgan and Bloomberg indices is expected to lead to substantial interest from foreign portfolio investors in the longterm for sovereign green bonds. So, higher borrowings from this instrument can be expected in FY26.

Indian government bonds were added to the JPMorgan Government Bond Index Emerging Markets on 28 June, with a phased inclusion scheduled to be completed by 31 March 2025, when India’s weight in the index is projected to reach 10%. The bonds will be included in the Bloomberg Emerging Market Local Currency Government Index and related indices over a 10month period starting 31 January 2025.

Typically, green bonds help fund renewable energy projects. With several such public sector projects in the pipeline, policymakers expect the funds raised through this route to be easily utilized.

The government issued sovereign green bonds of 20,000 crore in FY24 and planned to borrow 12,000 crore via 12 green bonds in the first half of FY25. Although govt pla investor interest in green bonds hasn’t been conborrow sistent, experts said the bonds in government is committed to price discipline and building a sustainable market.

In June, the Reserve Bank of India cancelled a 10year green bond auction due to the market’s inability to pay the premium. During the first half of FY25, the RBI, on behalf of the Central Government, raised about 1,700 crore through green bonds, less than the total notified amount of 6,000 crore.

The government then raised 5,000 crore in November, after almost 3,500 crore devolved on primary dealers, suggesting lack of investor interest. It plans to raise an additional 15,000 crore through green bonds in December, January and February, taking the proceeds for the ongoing fiscal to about 21,000-22,000 crore.

“By pricing these bonds competitively against conventional benchmarks, the government aims to attract longterm institutional investors and build a sustainable green bond market,” .

The government said on Thursday that policy reforms in the financial sector have restored the health of the banking sector, with the gross nonperforming asset (NPA) ratio of public sector banks (PSBs) falling to 3.12% in September 2024 from a peak of 14.58% in March 2018 and 4.97% in March 2015.

The reforms also increased the capital adequacy ratio of PSBs by 396 basis points (bps) to 15.43% in September 2024 from 11.45% in March 2015.

The marked improvement also saw PSBs record their highest ever aggregate net profit of 1.41 trillion in FY24 against 1.05 trillion in FY23, the finance ministry said in a statement. The figure for the first half of FY25 was 0.86 trillion, it said.

“PSBs continue to expand their reach to every nook and corner of the country to deepen financial inclusion. Their capital base has strengthened and their asset quality has improved. Now they are able to go to market and access capital instead of depending upon the government for recapitalization,” the ministry added.

In its assessment of the banking sector, the finance ministry said Indian banks were on a growth path, with the number of branches increasing from 117,990 in March 2014 to 160,501 in September 2024 .

The government is considering extending duty free import of yellow peas for a few more months, possibly until February, to help lower prices and address shortages of tur (pigeon pea) and chana (gram).

An official notification to this effect is expected soon, as duty free import of yellow peas is currently allowed until the end of December.

The proposed move comes against the backdrop of lower yield expectations for tur in some of the major tur growing states and is a short term measure to stabilize prices for essential pulses. This is particularly relevant as the harvest of tur crop begins in December and January.

“The extension will be for only a few months to keep the prices of pulses stable,” .

According to the Agriculture Ministry’s Rabi sowing data, the area covered by pulses has increased by 4.23%, reaching 12.06 million hectares (Mha) as of 6 December, compared to 11.57 Mha last year. This is expected to surpass the normal sown area of 14.04 Mha, driven by the high remunerative prices received by farmers last year.

The body representing pulses traders has criticized the government’s proposed move, arguing that it is against the interests of both farmers and traders. Traders’ body claim such measures could disrupt market dynamics and negatively impact profitability for those involved in the pulses supply chain.

“When we have sufficient pulses available, and the arrival of the fresh crop will start by the end of this month, Idon’t see any necessity to extend the import period,” said Bimal Kothari, chairman of the India Pulses and Grains Association (IPGA).

“Extending the duty free import period for yellow peas would not align with India’s strained diplomatic relations with Canada. The farmers and traders of Canada will be the immediate beneficiaries of the proposed duty free import of yellow peas,” .

India has imported over 2.2 million metric tonnes of yellow peas between December 2023 and September 2024 to boost the overall availability of pulses.

India largely imports yellow peas from Canada and Russia.

“No doubt, the sowing of chana is set to exceed the normal sown area of 14.04 million hectares, but we must remain prepared to face any climatic challenges,” .

The European Space Agency.  announced that the key radio equipment that will be deployed for Gaganyaan mission — India’s first attempt at sending humans into space — will soon undergo tests at one of its facilities in Germany.

This pace up in activities pertaining to Gaganyaan comes after the Indian Space Research Organisation (ISRO) signed a Technical Implementing Plan (TIP) with the ESA on December 4.