IIP growth glimmers in May

Production rises 2.4% consumer durables, electricity silver lining in an otherwise grim scenario

Industrial production showed bleak signs of recovery in May, rising 2.4 per cent, owing to a slight uptick in electricity and consumer durables. This followed contraction for consecutive months.

In May 2011, industrial growth had stood at 6.2 per cent.

Economists think it is unlikely the Reserve Bank of India would tweak the key policy rate later this month. Inflation data for June, scheduled to be released on Monday, would provide more data to the central bank to decide on its monetary stance.

NOT OUT OF THE WOODS YET

• Industrial growth at 2.4% in May
   
• IIP revised down from expansion to contraction in April
   
• Capital goods continue to be sluggish, contract 7.7% in May
   
• Exports contract 4.1%, imports 7.36% in May
   
• However, PMI (manufacturing) at a 4-mth high in June at 55 pts

Source: Ministry of Statistics and Programme Implementation

Industrial growth, as measured by the Index of Industrial Production (IIP), contracted 3.1 per cent in March and 0.9 per cent in April. IIP growth for April was scaled down from the earlier estimate of 0.1 per cent.

In the April-May period, IIP growth stood at a muted 0.8 per cent, against 5.7 per cent in the corresponding period of the previous year. This dashed hopes of a recovery in the first quarter of this financial year. Growth in gross domestic product might also remain subdued, after falling to an at least 32-quarter low of 5.3 per cent in the quarter ended March.

“By October, we will be able to tell if the economy is turning around,” said Planning Commission Deputy Chairman Montek Singh Ahluwalia.

The mining sector contracted 0.9 per cent in May, owing to continuing woes in the natural gas sector. Natural gas output has remained negative for about a year. “Natural gas production from the KG-D6 field has fallen, and supply constraints in the sector need to be addressed,” said Anis Chakravarty, senior director, Deloitte.

Manufacturing rose 2.5 per cent in May, compared with 1.2 per cent contraction in April. The slowdown in manufacturing was also reflected in exports contracting 4.1 per cent and imports falling 7.4 per cent.

The electricity segment, however, was the silver lining, growing 5.9 per cent, against 4.5 per cent in April. Consumer durables, too, recorded growth, expanding 9.3 per cent, compared with 5.1 per cent growth in April.

Segment-wise, capital goods continued to remain sluggish, contracting 7.7 per cent, compared with 13.8 per cent contraction in April. This reflected the weak sentiment for investment. “When investment drops, there is a stock adjustment process....That adjustment is happening,” said Ahluwalia.

With growth slowing, all eyes would now be on the central bank, which may keep policy rates unchanged due to upside risks to inflation—depreciation in the rupee, the possibility of a deficit monsoon and the pending rises in administered fuel prices, coal and electricity.

“We believe there is limited room for RBI, at this juncture, to support growth through a cut in the repo rate,” said Shubhada Rao, chief economist, YES Bank.

Industry chambers, however, asked the central bank to ease its monetary stance. Commerce & Industry Minister Anand Sharma, too, urged RBI to ensure capital was available to industry.