Industrial production surprises with a 2.6% growth in July
New Delhi: Industrial production grew 2.6 percent in July, expanding for the first time in three months, on improved performances in the manufacturing and power sectors, raising hopes of a recovery and expectations the RBI will cut interest rates to boost consumer demand.
Factory output measured in terms of the Index of Industrial Production (IIP) had contracted 0.1 percent in July last year. It had dipped 1.78 percent in June and 2.8 percent in May this year.
"It's good news. It indicates a revival in industrial growth. I believe the phase of negative growth is coming to an end. Growth will pick up in coming months," said C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council.
Commenting on the data, CII Director General Chandrajit Banerjee said, "This is welcome, though it is too early to presume that a recovery is under way...In the very short term, of course, an easing of benchmark rates by the RBI would provide the much needed demand traction which has been ailing segments like consumer durables."
As per data released by the Central Statistics Office today, the IIP contracted 0.2 percent during April-July.
The manufacturing sector, which constitutes over 75 percent of the index, grew 3 percent in July compared with zero growth a year earlier. During April-July, the sector saw a decline of 0.2 percent compared with a contraction of 0.6 percent in the period last year.
Power generation increased 5.2 percent in July from growth of 2.8 percent in the same month in 2012. Electricity output in April-July grew 3.9 percent compared with 5.5 percent a year earlier.
Output of capital goods, a barometer of demand, grew 15.6 percent compared with a 5.8 percent decline in the same month a year earlier. During April-July, capital goods production grew 1.8 percent compared with a drop of 16.8 percent in same period last year.
Among the 22 industry groups in the manufacturing sector, 11 recorded positive growth in July.
"The economic situation is expected to improve in the ensuing months on moderating inflationary expectations and various reform measures undertaken by Government and Reserve Bank of India," said Suman Jyoti Khaitan, President of the PHD Chamber of Commerce & Industry.
Meanwhile, mining output declined 2.3 percent in July, compared with a dip of 3.5 percent. In April-July, the sector declined 4 percent compared with a contraction of 2 percent in the corresponding period.
"Government needs to take some bold measures like reducing interest rates further, fast-track implementation of large projects like industrial corridors and through pro-active government procurement policies," Ficci Secretary General Didar Singh said.
Consumer goods output contracted 0.9 percent in July, compared with growth of 0.7 percent a year earlier. Production of these goods declined 2 percent in April-July compared with growth of 3.1 percent in same period of 2012.
The decline in output of consumer durables stood at 9.3 percent in July, from a growth of 0.8 percent previously. The segment saw a 12 percent decline in output in April-July compared with growth of 6.1 percent.
Consumer non-durables output grew 6.8 percent against a dip of 0.6 percent a year ago and expanded 6.8 percent in April-July compared with 0.6 percent growth in the same period a year ago.
Intermediate goods output expanded 2.4 percent in July as against 0.1 percent a year ago. For April-July, the expansion was 1.8 percent compared with 0.6 percent.
Basic goods output grew 1.7 percent in July from a growth of 1 percent last year. Production of these goods grew by 0.2 percent in April-July compared with 2.7 percent a year earlier.
Siddharth Shankar, advisor of research firm KASSA, said, "Good monsoon and a stable rupee will help stabilise inflation in the near term. Going forward, I expect IIP numbers to maintain a positive trend."
Commenting on the IIP data, Economic Affairs Secretary Arvind Mayaram said, "Growth is likely to pick up from now onwards."
Decisions of the Cabinet Committee on Investment should get reflected in the growth numbers, he said, adding that the second quarter would be better than the first quarter.
Foreign direct investment in the first quarter was encouraging, he said. During April-June, FDI into India grew 22 percent to USD 5.39 billion from USD 4.42 billion in the same period in the previous year.
Sectors that received large FDI inflows during the first quarter include pharmaceuticals (USD 1 billion), services (USD 945 million) and the automobile industry (USD 515 million).
FDI increased by about 16 percent year-on-year to USD 1.44 billion in June, which is the lowest figure during the calendar year. In June 2012, the country had received FDI worth USD 1.24 billion.