Industrial output rises in May but recovery probability low (Second Lead)

July 12th, 2012 - 8:47 pm ICT by IANS  

New Delhi/Chennai, July 12 (IANS) India’s industrial output grew by 2.4 percent in May as against 0.9 percent contraction in the previous month, led by rebound in manufacturing and electricity production, government data showed Thursday. Analysts, however, warned that the probability of industrial recovery in the short term is low.

The cumulative growth in the factory output in April-May period, measured in terms of the Index of Industrial Production (IIP), stands at 0.8 percent year-on-year.

Electricity production grew by 5.9 percent and manufacturing output rose by 2.5 percent in May, data released by the Central Statistics Office showed.

Economic Affairs Secretary R. Gopalan said the May data showed improvement in factory output, especially in some sectors like textiles.

“It has shown improvement. Factory output was negative in the last two months,” he said.

The factory output had contracted by 0.9 percent and 3.5 percent consecutively in the previous two months.

Planning Commission Deputy Chairman Montek Singh Ahluwalia, however, said the improvement in factory output was not enough to indicate any significant rebound in growth.

“I don’t think this is an improvement that indicates robust recovery… It’s good news but not very good news,” Ahluwalia said.

Manufacturing output had been a big drag on the overall IIP data, which is considered a barometer of the economic growth.

The cumulative growth of manufacturing sector in the first two months of the current fiscal stands at 0.6 percent, while electricity sector has registered an average growth of 5.2 percent in April-May.

However, mining continued to be a drag. Mining output dropped by 0.9 percent in May. The cumulative contraction in the first two months in the mining sector stands at 2 percent.

In the manufacturing sector, 12 out of the 22 industry groups have shown positive growth during the month under review.

The industry group “radio, TV and communication equipment and apparatus” has shown the highest growth of 16.4 percent, followed by 13.7 percent in “machinery and equipment” and 12.6 percent in “fabricated metal products”.

On the other hand, the industry group “electric machinery and apparatus” has shown a negative growth of 28.6 percent, followed by 14.9 percent contraction in furniture production and 6.8 percent drop in wearing apparel, dressing and dyeing of fur.

As per use-based classification, output of basic goods grew by 4.1 percent and that of intermediate goods by 2.7 percent. The production of capital goods contracted by 7.7 percent in May.

Devendra Kumar Pant, director at Fitch Ratings India, said while the May IIP growth although improved from April, it continued to be lacklustre, suggesting low probability of industrial recovery in the short run.

While positive growth of basic goods (due to slower contraction of mining sector and satisfactory growth of electricity sector) and intermediate goods were a pointer for marginal industrial recovery in near future, negative growth of capital goods suggests a sluggish investment scenario, he said.

“Going forward, investment revival and thus industrial recovery will depend on how fast government is able to resolve policy issues. RBI’s monetary policy action later this month will be governed more by inflation trend rather than IIP growth,” Pant said.

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