New Delhi: Pulled down by contraction in the capital goods and mining sectors, industrial production recorded a dismal growth of 2.4 percent in May - slightly better than (-)0.9 percent in April - and may prompt the Reserve Bank to cut interest rates to boost growth.
"The IIP numbers remain weak but are better than previous month. Such growth rates, however, are not acceptable," Planning Commission Deputy Chairman Montek Singh Ahluwalia said while commenting on the industrial production data.
The Index of Industrial Production (IIP) has slipped to 2.4 percent in May, 2012 from 6.2 percent in the same month last year. The data released today also revealed that there was a contraction in April at (-)0.9 percent, as against 0.1 percent growth reported earlier.
According to Economic Affairs Secretary R Gopalan, "IIP numbers have shown improvement compared to previous month... electricity machinery production is showing decline...(the government will be) studying if this is due to imported power equipment...Believe there is some turnaround."
During the first two months of this fiscal, April-May, the industrial growth rate decelerated sharply to 0.8 percent from 6.2 percent in the same period of 2011-12.
What is worrying, however, is that the output of the capital goods sector - machinery and equipment used by industry - declined by 7.7 percent in May, as against a growth of 6.2 percent in the same month last year. The mining sector output too contracted by 0.9 percent in May, compared to 1.8 percent growth.
Pitching for rate cut by RBI in its forthcoming policy review on July 31, Assocham President Rajkumar Dhoot said, the central bank should shift from "status quo" approach to "growth-oriented" stance.
Some economists said, however, that RBI was likely to keep the key rates unchanged.
"It is essential that a fresh look is taken in the (RBI) monetary policy, and from a status-quo approach a more growth oriented stance is introduced," Dhoot said.
The manufacturing sector, which constitutes over 75 percent of the index, did not perform well and grew a meagre 2.5 percent, as against 6.3 percent in May 2011.
Consumer durables production showed a faster growth rate of 9.3 percent in May, as compared to 5.1 percent in the same month last year. The consumer non-durables segment output growth remained flat at 0.1 percent, as against 9 percent.
Power generation witnessed a slower growth of 5.9 percent during May, compared to 10.3 percent.
In all, 12 of the 22 industry groups in the manufacturing sector have shown positive growth during May as compared to the same month a year ago.
Commenting on the data, Crisil Chief Economist D K Joshi, said, "Consumer durables have done quite well this month compared to last few months. However, I doubt it will sustain."
On the outlook for the capital goods sector, he said, "Growth is likely to remain weak in next few months. If there is some policy action from government, the investment sentiment may improve."
KASSA Group director Siddharth Shankar said, "While the numbers may look good, they still represent a slowing Indian economy. Factory output will remain subdued in India for most of this year and, may be, a year more."
For the year as a whole, Abheek Barua, chief economist, HDFC Bank said, "IIP growth could be in the range of 4-4.5 percent."
On the possible RBI action, he said, "It is guided by inflation, which is high. I do not think it will either cut rates or infuse liquidity into the system."
First Published: Thursday, July 12, 2012, 11:35