Industrial production expanded by a meagre 1% during the April-November period, compared with 3.8% a year earlier. In October, helped by the robust manufacturing attributable to Diwali demand and a favourable base, industrial output hit a 16-month high growth of 8.3%.
The slump was largely due to a high base (factory output had grown 6% in November 2011) and manufacturers' possible drawing down on inventories built up before Diwali to cater to the festive demand, instead of stepping up production, analysts said, adding that the industrial sluggishness may have bottomed out. The favourable base is likely to augur well for the Index of Industrial Production (IIP) in the rest of this fiscal, they said.
Analysts expect the IIP to perform well in the next fiscal as well, aided by a revival in private consumption growth, a marginal increase in exports as well as increased government spending ahead of the general elections. Higher farm incomes (assuming a normal monsoon), increased pre-election welfare expenditure by the government and lower interest rates are expected to improve household spending in 2013-14... Improved private consumption growth would benefit sectors such as consumer goods and automobiles, Crisil principal economist Vidya Mahambare said.
Planning Commission deputy chairman Montek Singh Ahluwalia said: "(The November industrial output data) does not contradict the proposition that the economy has bottomed out. It now needs to move upwards... You need to wait to see what December is like."
Prime Minister's Economic Advisory Council chairman C Rangarajan said: "The Reserve Bank of India (RBI) will look at a number of factors. The Wholesale Price Index inflation (to be released next week) will be an input for the decision making. The RBI will have to see an appropriate action being taken to contain the fiscal deficit ... Trends are in the right direction perhaps. But let us wait."
Capital goods output a gauge for fixed corporate investment contracted 7.7% after posting growth in October following seven straight months of contraction. The segment recorded growth only for a sixth time in October since the beginning of the last fiscal, while overall industrial production grew in 13 of the 20 months. Growth in the consumer goods, consumer durables and non-durables and capital goods sectors witnessed a slowdown in November, but remained almost in sync with their expansion this fiscal barring October, when all these segments saw considerable growth.
"The contraction in capital goods after a brief reprieve in October reiterates that the investment cycle is yet to pick up in a meaningful manner. As such, consumption-led growth, which in itself is moderating, has further downside risks to growth... We are of the view that the RBI will definitely cut rates by 25 basis points, maintain a doveish tone and a commitment to maintain liquidity in the comfort zone through open market operations, which will pave way for better transmission," said Shubhada Rao, chief economist at Yes Bank.