Industrial production contracted 1.8 per cent in June, official data showed on Thursday. The contraction was in sharp contrast with the whopping 9.5 per cent expansion in the same month last year. That prompted yet another agency, Moody’s Analytics, to project sub-six per cent economic growth for India this financial year.
External headwinds, high interest rates and a weak sentiment pulled down manufacturing growth to minus 3.2 per cent in June. Within manufacturing, capital goods production fell sharply. Also, initial signs of the impact of a weak monsoon on the consumer non-durable sector became evident.
Capital goods production dropped by a huge 27.9 per cent and and consumer non-durable goods production fell by a moderate one per cent.
The negative growth in capital goods in June was the steepest in the new Index of Industrial Production (IIP) series, with 2004-05 as the base year. However, in March 2012 and October 2011, the fall in capital goods was quite close at 21.3 per cent and 25.48 per cent, respectively. The mildly positive industrial production numbers for May proved to be an aberration in the quarter, after industrial growth declined 0.90 per cent in April. May industrial growth now stands revised at 2.5 per cent, against 2.4 per cent estimated provisionally. June was the third month in calendar year 2012 when industrial growth was negative. In March, industrial production contracted 3.5 per cent.(WORRYING PORTENTS FOR JUNE QUARTER GDP)
Expressing disappointment at the IIP numbers, Finance Minister P Chidambaram said, “It is important to focus on the critical sectors, remove bottlenecks and give a fillip to production.” He said production would be revived if there were new investments in demand-creating industries. Planning Commission Deputy Chairman Montek Singh Ahluwalia also expressed disappointment at the numbers. It was largely capital goods that brought down the headline numbers, cautioned economists. Without capital goods, industrial production would have posted a positive growth of 3.5 per cent in June, they added. Chidambaram said consumer spending remained good.
Aditi Nayar, senior economist with ICRA, said, “The muted growth recorded by the consumer non-durables sector may persist in the ongoing quarter due to below-average monsoon rainfall.”
Glenn Levine, senior economist with Moody’s Analytics, which on Thursday pegged India’s economic growth this fiscal close to 5.5 per cent, said, “I shudder to think what the July figure will be after last week’s blackout.”
The IIP numbers are set to have a severe impact on first-quarter GDP numbers, as industrial growth stood at a three-year low of minus 0.1 per cent in April-June 2012, against 6.9 per cent in the corresponding period of last year. Already, many independent economists and agencies have projected India’s economy to grow below six per cent this fiscal. Industry chambers have called for rate cuts by the RBI, though economists believe upside risks on inflation would weigh heavily on the central bank’s mind.