India’s factory output slows further in May

July 12th, 2011 - 9:59 pm ICT by IANS  

New Delhi, July 12 (IANS) India’s industrial production grew at a slow 5.6 percent in May, the pace dipping even below the expansion seen in the previous month, primarily due to slow growth in the manufacturing sector, according to official data released Tuesday.

Provisional figures for the index of industrial production (IIP) growth in April were also revised downwards to 5.7 percent from the earlier projection of 6.3 percent. IIP had risen by 8.5 percent in May 2010.

Policymakers have been expressing confidence that industrial output will swing back from the lows it hit in the past few months, but the second successive decline in factory production levels will certainly cast doubts over the overall gross domestic product growth target of 8.5 percent.

The data has been computed by keeping 2004-05 as the base year. The earlier series had 1993-94 as the base.

“Slowdown in the growth of manufacturing sector is indeed a cause for concern as an increasing number of sectors are witnessing negative growth. Quarter ending March 2011 shows a staggering 55.13 percent fall in new investments in the economy which is the highest fall for this quarter in last 5 years,” said FICCI president Harsh Mariwala.

Manufacturing, which constitutes about 80 percent of the IIP, grew at a rate of 5.6 percent in May compared to 8.9 percent last year, while mining output up by 1.4 percent as against 7.9 percent in April 2010, according to the statement from the ministry of statistics and programme implementation.

“This massive slowdown in investments has affected the growth of manufacturing sector, besides other factors. Growth in sectors like machinery and electrical machinery, which is an indicator of investments in the economy has been negative which implies that there could be further slowdown in investments in coming months,” added Mariwala.

According to Tuesday’s data, capital goods grew at a sluggish 5.9 percent, while intermediate products was almost stagnant, the production of which rose by 0.9 percent.

Consumer goods output rose by 5.4 percent, while consumer durables production slowed to 5.2 percent as against a whopping 14.7 percent in the like month of last year.

Electricity generation, however increased by a robust 10.3 percent during the month under review.

In terms of industries, 14 out of the 22 industry groups in the manufacturing sector have shown positive growth during the month.

The incessant rate hikes by the Reserve Bank of India (RBI) too have started to affect expansion plans of the industry as credit has started getting costlier. The RBI has raised key interest rates ten times since March 2010 to curb inflation.

“The impact of interest rate increases over the past 15 months is reflecting in the moderated growth numbers. The degree of slowdown in growth would have implications on RBI’s rate increase plans,” said Sudhakar Shanbhag, chief investment officer, Kotak Mahindra Old Mutual Life Insurance Limited.

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