Industrial growth slipped to 11.5 per cent in May, from 16.52 per cent in the previous month, though the output recorded a double-digit growth for the eighth month in a row driven mainly by a robust performance of the manufacturing sector.
The slippage in industrial output, experts say, was on expected lines and will not have any bearing on the Reserve Bank's review of the credit policy due later in the month as the central bank's main task would be to contain inflation, which is in double-digits.
"Nobody should expect that the manufacturing sector will continue to grow at abnormally high number for a long time to come. There are capacity constraints," Finance Secretary Ashok Chawla said when asked about the reasons for slippage.
The Index of Industrial Production (IIP), on the back of 12.3 per cent growth in manufacturing and 34.3 per cent jump in capital goods sector, recorded an increase of 11.5 per cent in May, up from 2.1 per cent the same month a year ago.
The industrial output for April, the first month of the fiscal, was revised downwards from 17.6 per cent to 16.52 per cent. The growth for April-May works out to be 14 per cent against 1.4 per cent in the year ago period.
According to Chawla, "whatever output lag was there in the economy has been filled and the manufacturing sector is now showing the kind of average secular growth which continues to be good and would be favourable for the economy."
"The IIP is now coming back to its normal level of 10-12 per cent growth. The increase in the capital goods segment is a good sign. What this means is that there is investment demand and so we can expect a growth in investments in the coming months," ICRIER's chief executive Rajiv Kumar said.
Crisil Chief Economist D K Joshi too opined that high growth of 15-16 per cent cannot be sustained in the long run.
"It is true that the growth is not as high as expected but we consider it to be of a more sustainable level. A growth of 15-16 per cent is not sustainable on a long run. We are expecting an annual growth of around 9 per cent," he said.
Joshi also said deceleration of industrial output will not have any impact on RBI's first quarterly review of monetary policy. "As for interest rates, we have been maintaining that RBI will go for a 25 basic points hike in repo and reverse repo rates (RBI's short-term lending and borrowing rates) on July 27. IIP will have no impact upon it."
Mining sector posted a growth rate of 8.7 per cent in May against 3.4 per cent a year ago. Power generation increased by 6.4 per cent against 3 per cent growth in May 2009. Consumer durables output grew by 23.7 per cent, while the consumer non-durables recorded a modest increase of 2.4 per cent in May.
