Industrial output growth rate slipped to a "disappointing" level of 1.8 per cent in December mainly due to poor showing by the mining and the manufacturing sectors, but Finance Minister Pranab Mukherjee expressed the hope it would revive in the coming months.
Factory output growth, as measured by the Index of Industrial Production (IIP), slipped from 5.94 per cent in November. It grew by 8.1 per cent in December, 2010.
The decline in industrial output, which comes in the backdrop of a likelihood in moderation in economic growth of 6.9 per cent in the current fiscal from 8.4 per cent in the previous fiscal, may prompt the Reserve Bank to reduce interest rates in its mid-quarterly policy review next month.
"IIP is disappointing... I hope, from the next couple of months it will start improving," Mukherjee said.
Output of the manufacturing sector, which constitutes over 75 per cent of the index, rose at a lower rate of 1.8 per cent in December, compared to a growth of 8.7 per cent in the same month of 2010.
Besides, capital goods sector witnessed a contraction of 16.5 per cent, against a growth of 20.2 per cent in the same month in 2010. Mining output too contracted by 3.7 per cent in December, against 5.9 per cent growth in the year ago period.
Prime Minister's Economic Advisory Council Chairman C Rangarajan said investment sentiment is expected to revive in the next three months.
"There are indications of revival in factory output in January-March quarter as mining sector would show improvement as coal output is expected to rise," Rangarajan said.
During April-December 2011, IIP growth stood at 3.6 per cent, against 8.3 per cent in corresponding period a year ago.
Rangarajan said the GDP growth for next fiscal (2012-13) is likely to be around 7.5 per cent.
Commenting on the IIP figures, Planning Commission Deputy Chairman Montek Singh Ahluwalia said the numbers are expected to bottom out in the third quarter and revive in the January-March period.
Industry chamber Ficci said given that industrial output is decreasing, "The coming Budget should not look at any increase in the excise duty for the manufacturing sector.