IIP grows 0.1 percent in July, government calls meeting to revive manufacturing (Lead)

September 12th, 2012 - 8:09 pm ICT by IANS  

Sensex New Delhi, Sep 12 (IANS) India’s industrial output grew in July, reversing the contraction in June, but at a marginal 0.1 percent from a year earlier, government data showed Wednesday.

The Index of Industrial Production (IIP) growth in July compares better than the 1.8 percent contraction seen in June.

According to data released by the Central Statistical Office (CSO), the meagre growth over the corresponding month of the previous year was due to poor show by manufacturing, mining and capital goods sectors.

This prompted the government to call a high-level meeting Thursday with state governments and industry representatives to revive the manufacturing sector which has a 75.5 percent weightage in the IIP.

The manufacturing output fell 0.2 percent from a year earlier in July, after falling 3.0 percent in June.

The sector is facing weak demand in both foreign and domestic markets with annual merchandise exports having fallen in four of the last five months.

Mining output fell 0.7 percent as against a growth of 0.7 percent in the like month a year ago.

The capital goods production, a key investment indicator, was also down 5 percent in July against a 13.7 percent contraction in the corresponding month a year ago.

The output of capital goods contracted in April-July period by 16.8 percent as against a growth of 8.2 percent in 2011-12.

However, electricity production grew by 2.8 percent.

Growth was also witnessed in basic goods (1.5 percent), consumer durables (1.4 percent) and consumer non-durables (0.1 percent).

Analysts said the data pointed to “structural weakness” in the economy amid falling exports and added pressure on the government to take urgent policy initiatives to beat the slowdown.

“The index (industrial production) actually fell on a MoM (month-on-month) basis also. Apart from the slowdown in capital goods (investments), the consumer goods have also started showing moderation in growth. This is also concerning because consumption has been driving the growth in the economy over the past few months,” said Dipen Shah of Kotak Securities.

Apex industry chambers voiced concern at the continuing slowdown of the industrial sector and asked for early implementation of non-legislative policy measures. These lobbies also stressed on the need to cut interest rates by the Reserve Bank.

“At this juncture, announcements on FDI, fiscal consolidation, manufacturing policy implementation, etc would be of great help”, said the Confederation of Indian Industry (CII).

“Investments have dried up, which are evident from the performance of the capital goods sector,” it said. The economy is in need of “sentiment boosters”.

Another industry chamber FICCI said the RBI should cut interest rates further at least by another 50 basis points immediately.

“The positive 0.1 per cent growth in IIP is insignificant since both the capital and intermediate goods category are in negative territory. The negative growth in capital goods will have lag effect implying that industrial growth will remain subdued in coming months,” said FICCI president R.V. Kanoria.

Assocham said the backbone of industrial economy is sliding and this needs to be reversed to avoid a full-blown recession.

Equity markets, however, shrugged off the IIP data and the Sensex touched the 18,000-mark on positive European cues.

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