Industrial growth stays below 5% mark in Aug

Mining a drag; second-quarter GDP may be hurt, says FM; all eyes on RBI.

Industrial output clocked below five per cent growth for the second month in a row in August. It was affected by a contraction in mining output as well as a dismal performance by the manufacturing sector.

The growth was 4.1 per cent in August, slower than 4.5 per cent in the corresponding month last year. Though it is higher than the revised 3.8 per cent for July, the August figure is much lower than market expectations of anywhere between 4.8 and 6.1 per cent.

If the HSBC Purchasing Managers’ Index for September, which showed contraction for the first time since April 2009, could be taken as an indication, the country may be headed for tough times as industry and services occupy almost 88 per cent of GDP. Besides, the collection figures for excise duty for September also fell year-on-year.(Click here for graphs)

India’s economic growth has already moderated to 7.7 per cent in the first quarter of this fiscal against 8.8 per cent in the corresponding period of last fiscal. This was the second quarter in a row to have sub-eight per cent growth.

“IIP growth in August is disappointing… it may affect second-quarter GDP,” said finance minister Pranab Mukherjee.

The numbers prompted not only industry chambers but also economists to ask the Reserve Bank to revisit its tight monetary policy stance at the upcoming review on October 25. Inflation stood at 9.78 per cent in August, despite successive rate hikes by the central bank.

Mining proved to be a major dampener for industrial growth, as measured by the Index of Industrial Production (IIP), as it contracted 3.4 per cent in August, the second such decline in output this fiscal.

Before this, mining had contracted 1.1 per cent in June, but the August contraction was the sharpest since April 2006, YES Bank chief economist Shubhada Rao said.

“The sharp decline in coal output by 15 per cent in August could be attributed to heavy rains,” she said. Heavy rains forced coal mines to shut. Economists also blamed the government indecision on go and no-go areas for increasing problems in coal mining.

Besides, Singareni Collieries Company Ltd, the second-largest coal producer after Coal India Ltd — also state-run, is facing shortage of workers due to the Telangana issue.