IIP growth slows to 11.5% in May

India’s industrial output grew at the slowest pace in seven months, slipping to 11.5% in May from 16.5% in April, but the drop is unlikely to prevent the RBI from raising interest rates later this month. Finance secretary Ashok Chawla remained hopeful of the industrial output growing at a double-digit clip in the ongoing fiscal. Global financial research firms such as Citi, however, said industrial growth will taper to 8%-9% in the ongoing financial year. Nomura Research said it expects industrial output growth to slow down from an average of about 14% in the first half to 6%-9% by the end of the year, and to an average of 9% for the entire fiscal. It attributed the decline in growth in May to weaknesses in capital and consumer goods. Analysts said annual production growth has most likely peaked with the strong statistical base effect gradually fading and the latest Manufacturing Purchasing Managers’ survey for June also indicating moderation. Others say the latest data will not have any bearing on the RBI’s review of the credit policy due later in the month as the central bank’s main task would be to contain inflation that is still in double digits. Those who expect the RBI to raise interest rates say headline inflation would have accelerated to 10.8% in June from 10.16% in May and wholesale price data on Wednesday would have a greater impact on the central bank’s decision. The government’s decision to deregulate petrol prices and raise other fuel prices is expected to further stoke inflationary pressures and immediately push up headline inflation by around one percentage point. Manufacturing clocked a growth of 12.3% and capital goods sector rose 34.3% to drive the Index of Industrial Production up by 11.5% in May, up from 2.1% last year. Industrial output for April, the first month of this fiscal, was revised downwards from 17.6% to 16.52%. The growth for April-May works out to 14% against 1.4% in the previous corresponding period. The mining sector posted a growth of 8.7% in May against 3.4% a year ago. Power generation increased by 6.4% against 3% in May 2009. Consumer durables output grew by 23.7%, while the consumer non-durables recorded a modest increase of 2.4% in May.