Industrial growth slumps to 1.8%

Confirming the advance projections of a scaled-down GDP (gross domestic product) expansion at 6.9 per cent for the current fiscal, industrial output in December was disappointing, growing by a mere 1.8 per cent in the wake of poor shows by the major sectors such as manufacturing and mining.

Even as factory output growth, as measured by the index of industrial production (IIP), slipped to such a dismal level in December 2011 from a comparatively healthy 5.94 per cent in November and a more robust 8.1 per cent in the same month a year ago, Finance Minister Pranab Mukherjee termed the figures as “disappointing” but expressed cautious optimism on a likely revival in the remaining months of 2011-12.

“[The] IIP [growth data] is disappointing ... I hope, from the next couple of months, it will start improving,” Mr. Mukherjee said. However, with India Inc. pointing to the slowdown signals and pleading for measures to revive industrial and economic growth, it is likely that the Reserve Bank of India (RBI) will take heed and take appropriate steps during its mid-quarterly policy review next month.

The IIP data released here on Friday revealed that the December output of the manufacturing sector — constituting over 75 per cent of the index — grew by a dismal 1.8 per cent as compared to a smart 8.7 per cent expansion in the same month of 2010.

More specifically, within the manufacturing sector, the capital goods segment — which signifies investment by corporates — saw a contraction of 16.5 per cent as compared to a robust growth of 20.2 per cent in December 2010.

Alongside, the mining sector output also dipped into negative by 3.7 per cent during the month as against a 5.9 per cent growth a year ago.

According to Prime Minister's Economic Advisory Council Chairman C. Rangarajan, investment sentiment would see a revival in the next three months. “There are indications of revival in factory output in January-March quarter as mining sector would show improvement as coal output is expected to rise,” he said.

Owing to the poor show in December, the IIP growth during April-December 2011 now stands pegged at 3.6 per cent as against 8.3 per cent in the same period of the previous fiscal year.

Commenting on the December factory output data, Planning Commission Deputy Chairman Montek Singh Ahluwalia viewed that the slide in industrial growth was likely to bottom out in the third quarter and then revive in the January-March period.

Apex chamber FICCI pointed out that in view of the fall in industrial output, “the coming Budget should not look at any increase in the excise duty for the manufacturing sector. Also, RBI should bring down the interest rates.”

The poor IIP numbers, however, were on expected lines as the core industries had also shown a subdued growth of 3.1 per cent in December owing to a lag in output of crude oil, steel and natural gas.

Among other IIP segments, output of basic goods rose by four per in December 2011 as compared to 7.8 per cent in the year-ago period while intermediate goods saw a contraction of 2.8 per cent as against 8.1 per cent growth in December 2010.

The only positive element was the consumer goods sector which witnessed a higher growth of 10 per cent during the month as compared to low 3.5 per cent increase in December 2010.