Industrial growth projections for the current fiscal will have to be revisited in the wake of "disappointing" pace of expansion in the factory output, which plunged in July to 3.3%, Chairman of Prime Minister's Economic Advisory Council C Rangarajan said today.
"As regards the estimate of industrial production for the year as a whole, we will have to revisit the area after one or two months," PMEAC Chairman said, after release of the Index of Industrial Production (IIP).
The dismal factory output growth was on the back of a poor performance by manufacturing, mining and capital goods segments. In fact, the capital goods sector saw a big decline of 15.2%,reflecting eroding investor confidence.
Industrial growth was 9.9% in the corresponding month of 2010 and 8.8% in June this year. The data is disappointing on the two scales, year-on-year and the sequential basis.
For the cumulative April-July, 2011-12 as well, the drop in growth is sharp at 5.8% as against 9.7% a year ago.
"It is a disappointing number. One had expected that industrial production will be slightly higher than this," Rangarajan said.
In its Economic Outlook, the PMEAC had projected industry to grow by 7.1% in the current fiscal. The government, in February had pegged it at 8.6%. The IIP had grown by 7.8% in 2010-11.
Rangarajan, however, hoped that the industry would put up a better show in the second half of the year.
"At the present moment perhaps the numbers are not encouraging... But if the industrial production does better in the second half, then the overall growth rate may be higher. I will say that we will have to revisit the area after one or two months," he said.
Asked if IIP slowdown may prompt a re-think on the GDP target as well, he said: "While industrial production does not appear to be encouraging and maybe lower than what we had originally expected, agriculture may do better.
"And the services sector may still do well and exports are doing well. Therefore, the revision in terms of the GDP growth rate will have to taken in the context of the developments in agriculture, industry and services," Rangarajan said.
The Finance Ministry may go in for a formal revision in the overall growth projections for the year in the backdrop of the recent global developments and rising cost of borrowing and raw material.
The PMEAC has projected GDP to grow by 8.2% this fiscal.
