Industrial growth, as measured by the Index of Industrial Production (IIP), slumped markedly to 0.6 per cent in February, 2013, from a relatively healthy expansion of 4.3 per cent posted for the same month a year ago, mainly on account of a dismal show by manufacturing and contraction in output by power and mining sectors.

Even as the IIP growth barely managed to stay in positive territory, the brighter side is that the data belied street expectations which had expected an overall contraction. More heartening, especially in an environment of pessimism, is the turnaround in the capital goods sector which indicates the fact that corporates have perhaps started making investments again.

The contraction in power generation and mining is understandable, given the numerous problems afflicting the two sectors in matters pertaining to land acquisition and environmental hurdles impacting mining activity for quite some time and non-availability of coal stalling a number of projects.

Be that as it may, the slippage in industrial growth coupled with a downward trend in retail inflation does set the stage for easing of interest rates by the Reserve Bank of India (RBI) along with a possible reduction in cash reserve ratio on May 3 to ensure adequate availability of funds, revive investor sentiment and spur growth.

The saving grace

Deriving some comfort despite the dismal numbers, Planning Commission Deputy Chairman Montek Singh Ahluwalia sought to argue that although the overall growth was very low, the saving grace was that the IIP data was not in the negative. “I think it [IIP growth in February] is consistent to what we have been saying that 2012-13 was not a good year and 2013-14 would be a lot better...I am glad that it [IIP] is not negative but it is very low…Obviously the industrial growth is very low. It is due to mining sector. There are problems in mining sector which I hope will get sorted out.”

As per the IIP data released here on Friday, growth in factory output for April-February 2012-13 stands pegged at 0.9 per cent, way lower when compared to the 3.5 per cent expansion posted for the same period of 2011-12.

Manufacturing sector

Going into specifics, while the manufacturing sector, which accounts for over 75 per of the IIP, witnessed a paltry 2.2 per cent growth in February as compared to 4.1 per cent in the same month of 2012, the cumulative growth for the sector during April-February remained very low at one per cent as against 3.7 per cent increase witnessed in the same period of 2011-12.

While capital goods output grew by 9.5 per cent in February 2013 as compared to a growth of 10.5 per cent in same month of 2012, the April-February period, however, saw a contraction by 7.6 per cent as against a dip of 1.8 per cent in the same period of 2011-12. As for consumer goods, the output was up by 0.5 per cent in February as compared to a decline in of 0.4 per cent in same month last year.

Power output contracted by 3.2 per cent in February this year as compared to a growth of 8 per cent in the same month of 2012 and consequently, electricity generation during the April-February period went up by just 4 per cent as against 8.7 per cent in the same period in the previous fiscal.

Mining output growth in February this year also contracted by 8.1 per cent as compared to a growth of 2.3 per cent in the same month of 2012. Overall, 13 of the 22 industry groups in manufacturing sector have shown positive growth in February this year.

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