Hit hard by high interest rates and low demand, industrial production grew just 0.1 per cent in July, compared with a fall of 1.75 per cent in the previous month. The growth was marginal, despite a low base of 3.7 per cent in the corresponding period last year.
Sluggishness prevailed across most sectors in July, with 14 of the 22 industrial categories recording declines in output, against eight in the previous month.
The low growth in the Index of Industrial Production (IIP) follows India’s gross domestic product growing just 5.5 per cent in the quarter ended June, a tad higher than 5.3 per cent in the previous quarter. After the IIP data was released, Finance Minister P Chidambaram said, “These IIP estimates reveal the performance of the economy continues to be disappointing.”
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Industry chambers have demanded the Reserve Bank of India (RBI) cut rates in its policy review on Monday. Most economists agreed.
Electricity generation rose just 2.8 per cent, partly due to the high base of about 13 per cent. In July, massive grid failures had hit many regions in the country. In June, electricity generation had increased 8.8 per cent.
Manufacturing and mining continued to remain laggards, with the output of both the sectors declining in July — by 0.2 per cent and 0.7 per cent, respectively. Besides the subdued macroeconomic environment, power outages and a strike at Maruti Suzuki’s Manesar plant also hit manufacturing. The manufacturing segment saw contraction in three of the first four months this financial year, May being an exception.
This is despite the industries department hoping to raise annual growth in manufacturing to 12-14 per cent in the next decade. That growth, however, would primarily be accounted for by large manufacturing zones.
Commerce and Industry Minister Anand Sharma is scheduled to meet chief secretaries and industry secretaries tomorrow, and the issue of boosting manufacturing growth is likely to be discussed.
Chidambaram said the government was intensively engaged with industry on the constraints on industrial production. He added the government would continue its efforts to find practical solutions to the problems. At a meeting with the heads of public sector undertakings, he discussed their capital expenditure plans.
After growing in May and June, the mining sector contracted in July. Cumulatively, industrial production contracted 0.1 per cent in the first four months of this financial year, against a rise of 6.1 per cent in the corresponding period of the previous financial year.
Economists have said high interest rates have raised the cost of borrowing for the industry and cut demand from consumers.
However, some don’t expect a rate cut by the central bank anytime soon. “We continue to expect a pause in the mid-quarterly policy meet by RBI,” said Tirthankar Patnaik, director (institutional research), Religare Capital Markets.
Inflation data for August will come on September 14.
The fall in IIP in June was primarily because of the capital goods sector, which declined 27.9 per cent. In July, the sector fell five per cent, which many analysts attributed to the base effect. In July 2011, the sector had declined 13.7 per cent, compared with a rise of 38.7 per cent in June 2011.
The basic goods segment rose 1.5 per cent, while the consumer durables sector, which grew 9.1 per cent in June, expanded just 1.4 per cent in July. Also, the outlook for the consumer durables doesn’t seem promising. “This trend may persist in the immediate term, as highlighted by the contraction in the production of two-wheelers in August,” said Aditi Nayar, senior economist with Icra.
