India’s industrial output grows at 5.6 percent in August

NEW DELHI - India’s industrial production in August grew at a much slower rate of 5.6 percent, compared to 15.2 percent in the previous month, and Finance Minister Pranab Mukherjee said the decline could affect economic growth.

Official data released Tuesday showed August’s index of industrial production (IIP) numbers was also lower than the 10.6 percent increase seen in the like month of 2009.

During this fiscal, for April-August, industrial output averaged at 10.6 percent against 5.9 percent in the like period of previous fiscal.

Though 14 out of the 17 industries, which constitute the IIP, posted positive growth in August, the quantum of increase was modest, as per data released by the Central Statistical Organisation (CSO).

Finance Minister Pranab Mukherjee expressed disappointment over the slower growth in output. “I am disappointed over the IIP data. It is not up to our expectations,” he told reporters here.

Mukherjee said the slower growth in industrial output was likely to affect economic growth.

The manufacturing sector, which constitutes a major chunk of the IIP, grew at 5.9 percent in August compared to 10.6 percent in the same month an year-ago.

Electricity generation too slumped, nudging up just one percent in the month under review as against 10.6 percent in August 2009.

The mining sector grew at a relatively faster rate of 7 percent in August, compared to 11 percent last year.

“The decline was expected owing to the base effect and the natural slowdown due to the stretched monsoon for this year, the magnitude of the slowdown was sharper than expected,” said Shanto Ghosh, principal economist, Deloitte in India.

Capital goods, which was the fastest growing sector in July, saw output declining by 2.6 percent in August, while consumer durables production fell 1.2 percent.

Overall growth in output of consumer goods stood at 6.9 percent in the month under review.

“Negative growth in key sectors like capital goods, apparel, consumer non-durables and chemicals is indeed a cause for concern and with further appreciation in rupee and hardening of interest rates, the growth of manufacturing sector may be significantly affected,” said Amit Mitra, secretary general, FICCI.

Ghosh said the five month average growth rate at 10.6 percent for this fiscal defies alarmist predictions by some citing the August IIP numbers as the onset for a dramatic slowdown of India’s growth rate. “Cyclicality is normal to expect in the way the Indian IIP is constructed.”

Among other sectors, intermediate goods production rose 10 percent while basic goods output was up 3.7 percent.

Experts earlier had said the industry could grow in single-digit for July because of the base effect, but the numbers came much lower than expected.

As a result, the 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange dipped more than 232 points or over a percent to 20,107.25 points around noon Tuesday. It closed for the day at 20,203.34 points, down 136.55 points.

The Reserve Bank of India has been basing consistent hikes in key interest rates on the resurgence of industrial output, saying all along that the measure were not affecting growth of industrial activities but targeted at containing inflation.

But with a drop in output, the RBI will be keenly watching this data before deciding on another rate hike at its monetary policy review in November.

“The RBI should pause and not increase policy rates any further as it could have a negative impact on consumer demand as well as corporate investment and thereby slowdown economic growth,” said Chandrajit Banerjee, director general, CII.