 "Dim hopes of economic revival: IIP dips 1.6 % in May")
Adding to macro economic woes, industrial production contracted an 11-month low of 1.6% in May as mining output continued to fall and manufacturing failed to grow.
The figures were released by the government today at a time when the policy makers are looking for even a glimmer of sign of revival after larger economic growth plunged to a decade low of five% in 2012-13.
With retail inflation rising to three-month high of 9.87% in June, the Reserve Bank of India may be in a fix to ease monetary stance when it announces its review later this month. The rupee depreciation against the dollar would add to that dilemma, analysts said.
Generally high numbers of the corresponding month of last year are blamed for low numbers, but industrial growth stood at just 2.5% in May, 2012.
Worse thing is industrial growth was revised down to 1.88% for the month of April against earlier calculation of 2.33%. This lends industrial growth at a meager 0.1% in the first two months of the current financial year against 0.6% in the corresponding period of 2012-13..
While the RBI released current account deficit (CAD) numbers a day in advance last month, the government released IIP numbers after market hours at 1730 today. It should be noted that CAD numbers are generally released after market hours, but were made public in the morning last month. CAD figures were not as disappointing as the deficit fell to 3.6% in the fourth quarter of 2012-13 after rising to a record 6.7% in the third quarter.
Manufacturing, which constituted over 75% of the Index of Industrial Production (IIP), fell two%, pulled down by consumer durables and capital goods production. Hit hard by rising interest rates, consumer durables fell a whopping 10.4%. This was the sixth straight month when consumer durable production failed to grow.
This was reflected when car sales in India plunged nine% for a record eighth month in row in June. It should be noted that IIP represents production and not sales, but the two are broadly linked to each other.
Capital goods production fell 2.7% in May, indicating that asset generation is not happening in industry which will plague industrial production in future as well. Capital goods are a volatile segment in the pack and see sharp variation every month.
Ajay Shankar, member-secretary in the National Manufacturing Competitiveness Council, blamed low manufacturing numbers in May to subdued demand in the economy.
When asked that projects are also being stuck up at various levels, he said those are now 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 a whopping 5.7% in May against a 0.7% decline in the same month a year ago. This was the eighth month in a row that mining production contracted.
Natural gas, coal and crude oil production declined 18.7%, 3.3% and 2.4% respectively.
It was primarily electricity generation that ignited some hope for industrial production. It rose 6.2% against 5.9% in May, 2012. At least on this front, things seem to be improving as outage was cited as one of the major problems for dragging manufacturing down.
If industrial production remains lacklustre in June as well, it would mean that around 20% of India's GDP is muted in the first quarter. The hope for higher GDP in the first quarter would then fall on agriculture and services.
Segments in the manufacturing sector showing a growth declined to 11 out of total 22 in May against 13 in April.
The figures were released by the government today at a time when the policy makers are looking for even a glimmer of sign of revival after larger economic growth plunged to a decade low of five% in 2012-13.
With retail inflation rising to three-month high of 9.87% in June, the Reserve Bank of India may be in a fix to ease monetary stance when it announces its review later this month. The rupee depreciation against the dollar would add to that dilemma, analysts said.
Generally high numbers of the corresponding month of last year are blamed for low numbers, but industrial growth stood at just 2.5% in May, 2012.
Worse thing is industrial growth was revised down to 1.88% for the month of April against earlier calculation of 2.33%. This lends industrial growth at a meager 0.1% in the first two months of the current financial year against 0.6% in the corresponding period of 2012-13..
While the RBI released current account deficit (CAD) numbers a day in advance last month, the government released IIP numbers after market hours at 1730 today. It should be noted that CAD numbers are generally released after market hours, but were made public in the morning last month. CAD figures were not as disappointing as the deficit fell to 3.6% in the fourth quarter of 2012-13 after rising to a record 6.7% in the third quarter.
Manufacturing, which constituted over 75% of the Index of Industrial Production (IIP), fell two%, pulled down by consumer durables and capital goods production. Hit hard by rising interest rates, consumer durables fell a whopping 10.4%. This was the sixth straight month when consumer durable production failed to grow.
This was reflected when car sales in India plunged nine% for a record eighth month in row in June. It should be noted that IIP represents production and not sales, but the two are broadly linked to each other.
Capital goods production fell 2.7% in May, indicating that asset generation is not happening in industry which will plague industrial production in future as well. Capital goods are a volatile segment in the pack and see sharp variation every month.
Ajay Shankar, member-secretary in the National Manufacturing Competitiveness Council, blamed low manufacturing numbers in May to subdued demand in the economy.
When asked that projects are also being stuck up at various levels, he said those are now 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 a whopping 5.7% in May against a 0.7% decline in the same month a year ago. This was the eighth month in a row that mining production contracted.
Natural gas, coal and crude oil production declined 18.7%, 3.3% and 2.4% respectively.
It was primarily electricity generation that ignited some hope for industrial production. It rose 6.2% against 5.9% in May, 2012. At least on this front, things seem to be improving as outage was cited as one of the major problems for dragging manufacturing down.
If industrial production remains lacklustre in June as well, it would mean that around 20% of India's GDP is muted in the first quarter. The hope for higher GDP in the first quarter would then fall on agriculture and services.
Segments in the manufacturing sector showing a growth declined to 11 out of total 22 in May against 13 in April.