Industrial growth slows to 6.3%

The country’s industrial growth slowed to a three month low of 6.3% in April dragged down by a sluggish manufacturing and electricity sector output as the impact of the central bank’s aggressive monetary tightening kicked in. Data released by the Central Statistics Office showed that the industrial sector continued with its slowing trend. The government also introduced a new series for the industrial output data and changed the base year to 2004-05 from the previous 1993-94. Under the old series, the industrial growth stood at 4.4%, lower than the previous month’s upwardly revised 7.8%.Finance Minister Pranab Mukherjee said the data was disturbing. “We need to wait for the longer term IIP growth to see the trend,” Mukherjee told reporters. Friday’s data showed manufacturing production rose 6.9% in April from a year earlier, while mining output grew 2.2% year in April. Electricity production rose an annual 6.4% in April compared to 7.2%. The capital goods sector, a barometer of industrial activity, rose 14.5%. The sector has been under pressure for the past few months. Consumer goods grew 2.9% and consumer durables rose 3.8% in April compared to 13.9%. Economists said the growth weakness in the industrial sector continued but the Reserve Bank of India (RBI) was unlikely to alter its tightening stance. “This data also shows volatility but less than the previous series. Inflation and inflationary expectations are high and rate hike is needed,” D K Joshi, chief economist at ratings agency Crisil said. The RBI has raised rates nine times since March 2010 to calm inflation and the impact is showing now. Car sales which have been growing at a scorching pace have slowed and latest data for May shows sales grew 7%, far below the double-digit growth seen in the previous months. Several data in the past few months have pointed to slowing down of growth growth. Growth in the March quarter slowed to 7.8% and policymakers now say that overall economic growth in 2011-12 would be around 8.5%, lower than the previously estimated 9%. Economists expect industrial growth to pick up pace in the second half of the fiscal year but say much would depend on the government policy action particularly on infrastructure. The government has added 682 individual items for the new series of IIP and a new weighting diagram which better reflects the present structure and composition of the industry due to changes in the technology, economic reforms and production behaviour over time. The new series of IIP covers the sectors of mining, manufacturing and electricity in its scope as in the current series. “The previous series was underestimating growth. The most significant upward correction has happened in capital goods. This is more representative of the current industrial activity,” Crisil’s Joshi said.