Industry beats slowdown blues; August IIP at 2.27%
Industrial growth slowed to 2.7 percent in August due to poor show by the manufacturing sector and contraction in capital goods output, which may prompt the Reserve Bank to cut key interest rates in its second quarter policy review later this month.
New Delhi: Showing signs of turnaround, industrial production grew by 2.7 percent in August, reversing the trend of contraction witnessed during the previous two months.
However, the overall factory output, as measured by the Index of Industrial Production (IIP), grew at a slower pace than 3.4 percent recorded in August 2011.
On sequential basis, IIP contracted by (-) 0.18 percent in July and (-) 1.8 percent in June.
Industrial output during April-August, as per official data released today, was 0.4 percent down from 5.6 per cent in the same period in 2011-12.
Manufacturing, which accounts for the bulk of industrial production, rose 2.9 percent in August, lower than 3.9 percent from a year ago. The growth for the April-August was flat, as against 6 per cent growth in the year-ago period.
Commenting on the data, PMEAC Chairman C Rangarajan said, "IIP numbers indicate there is some turnaround as far as manufacturing sector is concerned. I do expect in coming months the growth rate will further pick up and for year as a whole we can still see manufacturing growth at 3-4 percent".
The IIP number, which has turned around in August, is also expected to respond to the slew on reforms initiatives taken by government recently.
"The IIP numbers have been very volatile and the lower base is resulting in these numbers being on the higher side. The inflation is high and it would be difficult for RBI to cut interest rates," Kassa Group Director Siddharth Shankar said.
The RBI is scheduled to come out with the second quarter monetary policy review on October 30 and the September inflation numbers are scheduled on Monday. Wholesale Price Index-based inflation in August stood at 7.55 percent.
As per today's data, retail inflation moderated to 9.73 percent in September, from 10.03 percent in August.
Reacting to the IIP numbers, the BSE Sensex declined about 70 points and was at 18,774 at 11.09 hrs. Later, it fell further and was down 141.37 points or 0.75 percent.
Electricity output slumped to 1.9 percent in August, from 9.5 percent in the same month last year.
"Given the fact that electricity sector's growth is slowing down since April 2012, government should now ensure that it resolves the implementation issues like land acquisition, environmental clearances related to various infrastructure projects on urgent basis," Ficci said.
Capital goods output contracted by 1.7 per cent in August, as against 4 percent growth in August, 2011. Mining output in August grew by 2 percent as against contraction of 5.5 percent in same month last year.
Consumer goods production was up 5 percent in August as compared to a meagre growth of 2.1 percent in same month last year.
Expressing disappointment over the IIP numbers, industry has demanded rate cut from the RBI to kickstart investments.
"While the recently announced reform measures have revived business confidence to some extent, what is required now is a commensurate action from the RBI with a cut in repo rate. This has become a necessity to kick-start the investment cycle," CII Director General Chandrajit Banerjee said.
The government has already said it is committed to take steps to revive the economy, even though ratings agency Standard & Poor's has threatened downgrading the country's rating to junk if reforms initiatives are not undertaken.
"24 months is a long time... You will see a lot of reform, a lot of change, a lot of strengthening of the Indian economy," Finance Minister P Chidambaram said yesterday.
India's economic growth had fallen to a nine-year low of 6.5 per cent in 2011-12. The International Monetary Fund (IMF) has projected the economy to grow by 4.9 percent in 2012.