 "May factory output falls to 11-month low")
Industrial production data issued on Friday showed a contraction of 1.6 per cent in May, a 11-month low, as mining output continued to fall and manufacturing failed to grow.
The figures were released by the government at a time when policymakers are looking for even a glimmer of a sign of revival, after larger economic growth plunged to a decadal low of five per cent in 2012-13.
With June retail inflation rising to a three-month high of 9.87 per cent, the Reserve Bank of India has no easy decision on whether to ease its monetary stance at its review later this month.
Generally, high numbers of the corresponding month of the earlier year are blamed for low numbers this year: Known as the base effect. This isn’t true for the May data, as industrial growth was just 2.5 per cent in that month last year.
Worse, industrial growth has been revised downwards to 1.88 per cent for April, against the earlier calculation of 2.33 per cent. This means industrial growth was a meagre 0.1 per cent in the first two months of the current financial year against 0.6 per cent in the corresponding period of 2012-13.
If industrial production remains lacklustre in June as well, it would mean that around 20 per cent of India’s GDP was muted in the first quarter. The hope for higher GDP in the first quarter would then fall on agriculture and services.
While the Reserve Bank of India released the current account deficit (CAD) numbers a day in advance last month, the government released the Index of Industrial Production (IIP) numbers after market hours on Friday, at 5:30 pm.
The CAD numbers are generally released after market hours but were made public in the morning last month. Those figures were not as disappointing, with the deficit down to 3.6 per cent of gross domestic product in the fourth quarter of 2012-13, after rising to a record 6.7 per cent in the third quarter.
This was reflected when car sales in India plunged nine per cent for a record eighth month in row in June. It should be noted that IIP represents production and not sales; however, the two are broadly linked.
Capital goods production fell 2.7 per cent in May, indicating that asset generation is not happening in industry. This would plague industrial production in future, too. Capital goods are a volatile segment in the pack and see sharp variation each month.
Ajai Shankar, member-secretary in the National Manufacturing Competitiveness Council, blamed the low manufacturing numbers in May to subdued demand in the economy. When asked about projects stuck at various levels, he said those were being cleared.
What should the government and regulators do now? Should RBI cut the policy rate to boost demand? To a query on this, he said," One has to find creative ways of boosting demand, without compromising on fiscal consolidation."
Mining continued to be a drag. Its output fell 5.7 per cent in May, against a 0.7 per cent decline in the same month a year before. This was the eighth month in a row that mining production contracted.
Natural gas, coal and crude oil production declined 18.7 per cent, 3.3 per cent and 2.4 per cent, respectively in May.
It was primarily electricity generation that ignited some hope for industrial production. It rose 6.2 per cent, against 5.9 per cent in May 2012. Things seem to improving at least on this front, as outages were cited as a major problem in dragging manufacturing down.
Segments in the manufacturing sector showing growth declined to 11 out of a total of 22 in May, against 13 in April.
The figures were released by the government at a time when policymakers are looking for even a glimmer of a sign of revival, after larger economic growth plunged to a decadal low of five per cent in 2012-13.
With June retail inflation rising to a three-month high of 9.87 per cent, the Reserve Bank of India has no easy decision on whether to ease its monetary stance at its review later this month.
Generally, high numbers of the corresponding month of the earlier year are blamed for low numbers this year: Known as the base effect. This isn’t true for the May data, as industrial growth was just 2.5 per cent in that month last year.
Worse, industrial growth has been revised downwards to 1.88 per cent for April, against the earlier calculation of 2.33 per cent. This means industrial growth was a meagre 0.1 per cent in the first two months of the current financial year against 0.6 per cent in the corresponding period of 2012-13.
If industrial production remains lacklustre in June as well, it would mean that around 20 per cent of India’s GDP was muted in the first quarter. The hope for higher GDP in the first quarter would then fall on agriculture and services.
While the Reserve Bank of India released the current account deficit (CAD) numbers a day in advance last month, the government released the Index of Industrial Production (IIP) numbers after market hours on Friday, at 5:30 pm.
The CAD numbers are generally released after market hours but were made public in the morning last month. Those figures were not as disappointing, with the deficit down to 3.6 per cent of gross domestic product in the fourth quarter of 2012-13, after rising to a record 6.7 per cent in the third quarter.
This was reflected when car sales in India plunged nine per cent for a record eighth month in row in June. It should be noted that IIP represents production and not sales; however, the two are broadly linked.
Capital goods production fell 2.7 per cent in May, indicating that asset generation is not happening in industry. This would plague industrial production in future, too. Capital goods are a volatile segment in the pack and see sharp variation each month.
Ajai Shankar, member-secretary in the National Manufacturing Competitiveness Council, blamed the low manufacturing numbers in May to subdued demand in the economy. When asked about projects stuck at various levels, he said those were being cleared.
What should the government and regulators do now? Should RBI cut the policy rate to boost demand? To a query on this, he said," One has to find creative ways of boosting demand, without compromising on fiscal consolidation."
Mining continued to be a drag. Its output fell 5.7 per cent in May, against a 0.7 per cent decline in the same month a year before. This was the eighth month in a row that mining production contracted.
Natural gas, coal and crude oil production declined 18.7 per cent, 3.3 per cent and 2.4 per cent, respectively in May.
It was primarily electricity generation that ignited some hope for industrial production. It rose 6.2 per cent, against 5.9 per cent in May 2012. Things seem to improving at least on this front, as outages were cited as a major problem in dragging manufacturing down.
Segments in the manufacturing sector showing growth declined to 11 out of a total of 22 in May, against 13 in April.