June industrial growth in reverse gear again; contracts 1.8%

June industrial growth in reverse gear again; contracts 1.8% New Delhi: Reflecting worsening of the economic situation, industrial output declined in June by 1.8 percent, the third fall in four months, mainly due to sharp dip in manufacturing and capital goods sector.

While Planning Commission Deputy Chairman Montek Singh Ahluwalia described the Index of Industrial Production (IIP) numbers for June as "disappointing", industry chambers and other experts demanded immediate policy action to prevent further decline.

The declining factory output will increase pressure on Finance Minister P Chidambaram to quickly move ahead with the initiatives announced by him last week to boost investments to retrieve the situation.

As per the official data released on Thursday, the IIP growth in June declined by 1.8 percent from a healthy growth rate of 9.5 percent in the corresponding period last year.

During the April-June of the current fiscal, IIP growth works out to be -0.1 percent, as compared to a growth rate of 6.9 percent in the same period last fiscal.

The decline in industrial output has been mainly on account of poor performance of the capital goods sector which reported a negative growth of 27.9 percent in June. The manufacturing sector growth too contracted by 3.2 percent during the month.

"The industrial numbers have been disappointing for the first few months...I do not see robust industrial growth in the current fiscal," Ahluwalia said.

However, he hoped that initiatives announced by Chidambaram last week should help in boosting economy, more so in the second half of the financial year.

Industry chambers too expressed disappointment and called for immediate policy actions to arrest further decline in output.

The performance of the manufacturing sector, which constitutes over 75 percent of the index, was also dismal in April-June quarter as the output declined by 0.7 percent against a growth of 7.7 percent in the three-month period a year ago.
The capital goods production also contracted in April-June period by 19.6 percent against a growth of 17 percent during the same period of last year.

Industry chamber Ficci demanded a cut in interest rates to revive demand and boost investment.

"There is a strong case for the RBI to cut interest rates further at least by 50 basis points immediately so as to encourage investments," Ficci President R V Kanoria said.

"Going forward, we expect IIP growth to move into positive territory, but remain weak due to sluggish exports, below normal monsoons, high inflation and continued government policy issues," Nomura economist Sonal Verma said.

In all, 14 of the 22 industry groups in the manufacturing sector showed growth in June.

Meanwhile, the industrial growth rate for May, 2012 has been revised upwards to 2.53 percent, from the provisional estimates of 2.4 percent reported earlier.

Mining output in June grew by just 0.6 percent against a contraction of 1.4 percent in the same month a year ago.

The sector's production in April-June quarter declined by 1.1 percent compared to a growth of 0.6 percent in 2011-12.
Consumer goods production grew by 3.5 percent in June as compared to 3.1 percent growth in the same month last year.

During the first quarter of this fiscal, the growth in the segment was 4 percent compared to 4.4 percent in the three month period a year ago.

Consumer durables production showed a faster growth rate of 9.1 percent in June, compared to 1.6 percent in the same month last year.

The output of these goods registered a growth of 8 percent in April-June quarter this fiscal as against 2.7 percent in the same period in 2011-12.

The consumer non-durables segment output declined by 0.1 percent in June, as against a growth of 4.3 percent in the same month last year. This segment grew by 0.7 percent in first quarter this fiscal as against 5.9 percent in the same period of 2011-12.

Power generation witnessed a growth of 8.8 percent during June, compared to 8 percent in the same month a year ago. The electricity generation increased by 6.4 percent in the first quarter of this fiscal as against 8.3 percent in the same period in 2011-12.