Industrial output slows to 2.7% in May, manufacturing a drag

Industrial production in May slowed to 2.7 per cent from 5.6 per cent a year ago, dragged down by manufacturing, strengthening the case for an RBI rate cut.
The Index of Industrial Production (IIP) for April too has been revised downwards to 3.36 per cent from the earlier estimate of 4.1 per cent.
The growth in the first two months of the fiscal was 3 per cent as against 4.6 in April-May of 2014-15.
According to the data released this evening, a sharp deceleration in output was witnessed in the manufacturing sector though there was some pick-up in mining activity. Growth in power generation too saw a marginal slowdown at 6 per cent from 6.7 per cent in May of the last fiscal.

The growth in manufacturing was 2.2 per cent in May compared with 5.9 per cent in the corresponding month of the last year. The mining sector expanded 2.8 per cent compared with 2.5 per cent in May 2014.
Manufacturing constitutes over 75 per cent of the index.

The numbers further showed a slowdown in user-based industries, including capital goods and consumer durables.
Output in the consumer goods, consumer durables and consumer non-durables segments shrank 1.6 per cent, 3.9 and 0.1 per cent, respectively.
The growth in capital goods group was meagre 1.8 per cent in the month under review as against 4.2 per cent year-on-year.

The declaration in the industrial output may prompt RBI to consider industry demand of an interest rate cut in the next bi-monthly monetary policy meet on August 4. Besides data on industrial output and inflation, the central bank would also factor in spread of monsoon while deciding its monetary stance.