Factory output rises a sluggish 4.1 percent, may affect GDP

October 12th, 2011 - 6:47 pm ICT by IANS  

Pranab Mukherjee New Delhi, Oct 12 (IANS) India’s industrial output grew at a sluggish rate of 4.1 percent in August, prompting Finance Minister Pranab Mukherjee to say it was disappointing and would affect the second quarter GDP growth.

“Naturally, it is not encouraging. It is a bit disappointing and it may affect the GDP of second quarter,” Mukherjee told reporters here Wednesday.

Growth in factory output, measured in terms of the Index of Industrial Production (IIP), stands at 5.6 percent during April-August period, according to data released by the ministry of statistics and programme implementation.

Growth in industrial production has slumped during the last two reporting months, which will make it difficult to achieve the targeted 8 percent economic growth in the current fiscal. In July, the industrial output growth slumped to 3.8 percent, lowest in almost two years.

However, the finance minister declined to say to what extent the IIP data would impact the economic growth.

“To what extent it will affect, it would be premature to make any assessment,” Mukherjee said.

Growth in industrial production has declined mainly because of negative growth in mining output and poor performance in manufacturing sector.

Mining output slumped by 3.4 percent in August, registering just 0.2 percent cumulative growth in the first five months of 2011-12.

Manufacturing production grew at a sluggish rate of 4.5 percent in August, while electricity output registered a good growth of 9.5 percent during the month under review.

Manufacturing sector, which constitutes over three-fourths of the IIP index, registered cumulative growth of 6 percent in April-August period.

Reacting on the data, industry lobbies demanded that the government should initiate immediate action to boost manufacturing growth.

“There are enough signals of slowdown in the industrial sector now and it is high time that the government seriously looks into providing some investment boosting measures to revive the growth in manufacturing,” said Harsh Mariwala, president of the Federation of Indian Chambers of Commerce and Industry (FICCI).

Of 22 industry groups in the manufacturing sector, half registered positive growth in the month under review, year-on-year, while 10 posted negative growth and one — paper and paper products - showed no change.

The slump in industrial production growth will give further strength to the arguments of India Inc. that continuous rate hikes by the Reserve Bank of India were affecting growth.

The RBI has hiked key policy rates 12 times since January 2010 to tame stubbornly high inflation. This has made the cost of capital expensive, dampening industrial output growth.

“We expect the growth in industrial sector and investments to be low in coming months also as the impact of rising cost of credit would continue,” the FICCI president said.

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