IIP contracts by 0.1% to four-month low in Nov

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SummaryIndustrial production contracted 0.1% in November as manufacturing barely expanded and mining slumped after three straight months of growth, showed data from the Central Statistics Office released on Friday.

Industrial production contracted 0.1% in November as manufacturing barely expanded and mining slumped after three straight months of growth, showed data from the Central Statistics Office (CSO) released on Friday. Economists believe the fifth industrial contraction in eight months of this fiscal bolsters the case for a rate cut when the central bank meets on January 29 to review the monetary policy. How big the uptick in inflation was in December might be decisive, though.

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

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