Industrial output growth slows to 3.4% in June

Written by fe Bureau | Updated: Aug 13 2014, 07:39am hrs
Industrial production growth slowed to 3.4% in June after hitting a 19-month high in May, while retail inflation again rose in July due to high food prices, denting confidence about green shoots emerging.

The new data has made the task of the Modi government, already beset with the difficult job of reviving growth and containing the impact of poor rains, harder.

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Largely coming on the back of a 15.7% expansion in power generation, the fastest in at least two years the growth in index of industrial production (IIP) in June failed to enthuse analysts who expressed concern over a 10% drop in consumer goods output for the month and reckoned that a pick-up in consumption was a necessary precondition to any economic recovery. They added that a favourable base effect (IIP was -1.8% in June last year) has again helped prop up growth rates after the relatively good show in May, in which the overall IIP growth stood at a revised 5% from 4.7% announced earlier.

The data also dampened euphoria after core sector growth hit a nine-month high in June and a survey showing that the manufacturing sector posted its fastest growth in 17 months.

"The latest data showed it's not broad-based growth but limited growth in only a few segments of the infrastructure sector. While the power generation sector has been performing relatively well in recent months, what is worrying is the persistent weakness in demand, as consumer goods segment saw a major contraction despite a relatively favourable base," said CARE Ratings chief economist Madan Sabnavis.

Although the growth in capital goods output, a gauge for fixed corporate investment, witnessed a 23% in June compared with 4.5% a month before, analysts pointed at the wide fluctuation witnessed in this segment in the recent past. Notorious for fluctuations, the segment has witnessed contraction in 18 of the 27 months since the start of the 2012-13 fiscal, reflecting continued weakness.

A 23.4% drop in the consumer durables output in June and just 0.1% growth in consumer non-durables reflected a collapse of private consumption.

Moreover, the threat of wide-spread dry-spells after the weather office predicted deficient monsoon rains of 87% of the benchmark average this year worsens the risks of food inflation if the government doesn't get its act together.

CII director general Chandrajit Banerjee said: "With proper interventions in the areas of land, labour and environment norms, manufacturing can post a quick revival. We are already seeing a lot of proactive reforms being brought about by the government in the labour space. Industry also looks forward to change in the areas of land acquisition and other factors that could promote ease of doing business."