It is important to give a fillip to production: Chidambaram

Pulled down by a dismal show by the manufacturing sector, especially capital goods, industrial growth contracted by 1.8 per cent in June, the third such slide in four months, to reflect a further deterioration in the overall economic scenario.

Dismal show by manufacturing

Planning Commission Deputy Chairman Montek Singh Ahluwalia, as well as Finance Minister P. Chidambaram, who had sought to talk the economy up at his maiden press briefing earlier this week, dubbed the IIP (Index of Industrial Production) numbers for June as “disappointing” while India Inc. found enough powder in the data to clamour for immediate policy action to prevent a further slide.

Reiterating the need to promote critical sectors to boost growth, Mr. Chidambaram, in a statement, said: “The Quick Estimates of IIP for the month of June are disappointing.

“It is important to focus on the critical sectors, remove bottlenecks, and give a fillip to production…The production will revive if there are new investments in the demand creating industries.”

Mr. Ahluwalia, however, found no reason to be very optimistic. “The industrial numbers have been disappointing for the first few months...I do not see robust industrial growth in the current fiscal,” he said while hoping that the initiatives announced by the Finance Minister on August 6 should help in boosting the economy during the second half of the fiscal year.

In fact, the IIP data released here on Thursday reveal such a dismal industrial growth scenario that Mr. Chidambaram will have to quickly translate the initiatives announced by him into action to boost investor confidence and investments to retrieve the situation.

As per the data, industrial growth in June declined to minus 1.8 per cent from a robust expansion of 9.5 per cent in the same month a year ago.

Consequently, the cumulative IIP growth during the first quarter (April-June) of the current fiscal stands pegged at minus 0.1 per cent as compared to a far healthier 6.9 per cent growth achieved in the same period last fiscal. In particular, the slide in factory output has been mainly on account of the capital goods sector showing up with a negative growth of 27.9 per cent in June.

No surprise, therefore, that the manufacturing sector as a whole ended up in negative territory with a 3.2 per cent contraction in growth during June.

The poor June performance of the manufacturing sector, which constitutes over 75 per cent of the IIP basket, also reflected in the April-June quarter with a decline by 0.7 per cent in growth as compared to a 7.7 per cent growth in the same quarter of 2011-12. Likewise, capital goods output also contracted by 19.6 per cent during the three-month period this fiscal as compared to a robust expansion of 17 per cent witnessed in the same period last fiscal.

Policy action needed

Industry chambers, which had been alerting the government of the dismal situation over the past few months, expressed disappointment and demanded immediate policy actions to arrest further slippages.

Apex chamber FICCI called for a cut in interest rates to revive demand and boost investment. “There is a strong case for the RBI to cut interest rates further at least by 50 basis points immediately so as to encourage investments,” FICCI President R. V. Kanoria said.

As for the other segments of the IIP, mining output in June grew by just 0.6 per cent against a contraction of 1.4 per cent in the same month a year ago while its production in the April-June quarter declined by 1.1 per cent compared to a growth of 0.6 per cent in 2011-12.

Power generation

Power generation saw a growth of 8.8 per cent during June, a tad higher than the 8 per cent increase logged in the same month a year ago. Electricity generation increased by 6.4 per cent in the first quarter of this fiscal as against 8.3 per cent in the same period in 2011-12.

Meanwhile, the industrial growth rate for May, 2012, has been revised upwards to 2.53 per cent, from the provisional estimates of 2.4 per cent.

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