July IIP growth slows to 0.1%; FM terms data disappointing

Sep 13 2012, 01:14 IST
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SummaryIndustrial production unexpectedly recorded flat growth of 0.1% in July as manufacturing contracted for a second straight month, while the slump in capital goods output for the fifth time in a row reflected continuing sluggishness in investment.

Industrial production unexpectedly recorded flat growth of 0.1% in July as manufacturing contracted for a second straight month, while the slump in capital goods output for the fifth time in a row reflected continuing sluggishness in investment. Still, analysts said the Reserve Bank Of India (RBI) is unlikely to trim the benchmark lending rate at its meeting on Monday to prop up growth, given high inflation at an average of 7.37% since January.

The figure for April were also revised downward to -1.3% from -0.9% announced earlier, according to the data released by the Central Statistics Office on Wednesday.

Although industrial output growth recovered from a 1.8% contraction in June, it tumbled below a 0.5% expansion forecast by economists for July. The production shrank 0.1% in the first four months of the current fiscal, compared with a 6.1% expansion a year before. It had grown at 3.7% in July last year.

Finance minister P Chidambaram said the data revealed the economy’s continued disappointing performance. He, however assured that the government is intensively engaged with the industry on the constraints in production and will continue its efforts to find practical solutions. Chidambaram pointed to the mixed picture in sector-wise performance. There were gains in areas like as manufacturing and capital goods but slippages in others like electricity and consumer goods. “There is no clear pattern yet”, an official statement said quoting Chidambaram. While the general index for July, 2012 (over July, 2011) is positive at 0.1, it is too early to claim that this is a sign of a turn around, the statement further said.

Analysts predict weak industrial growth for August as well, as a fifth straight month of contraction in mining and uncertainty in fuel supply may upset power generation. Meanwhile, a 19% slump in car sales and the troubles at Maruti Suzuki, among others, would pressure manufacturing. This could jeopardise overall economic growth prospects in the second quarter through September unless the services sectors post massive expansion. The country’s gross domestic product (GDP) grew at 5.5% in the first quarter through June, the lowest pace in three years barring the previous quarter. Industrial output accounts for roughly 19% of the GDP.

Although policy makers remained tight-lipped about the latest IIP figures, chiefs of two large state-owned companies said the fears of a pronounced and protracted industrial slowdown might have been exaggerated. Steel Authority Of India chairman CS Verma said: “India is a demand

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